##### Table of Contents









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,
    2003
|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 20, 2004, the aggregate
market value of the 3,349,060 outstanding shares of voting stock
held by non-affiliates of the registrant was $88,147,259, based
upon the last reported sale of the Common Stock on the Nasdaq
National Market on such date.

As of February 20, 2004, 3,693,506 shares of
the registrants Common Stock, par value $.01 per share,
were issued and 3,433,901 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 13, 2004 is
incorporated by reference into Part III.



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TABLE OF CONTENTS



|                                                        |                                                                                                                      |  |  |  |  |  |  | 
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                 
|                                                        | Item 1. Business                                                                                                    
|                                                        | Item 2. Properties                                                                                                  
|                                                        | Item 3. Legal Proceedings                                                                                           
|                                                        | Item 4. Submission of Matters to a Vote of Security Holders                                                         
|PART II                                                
|                                                        | Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|                                                        | Item 6. Selected Financial Data                                                                                     
|                                                        | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                       
|                                                        | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                 
|                                                        | Item 8. Financial Statements and Supplementary Data                                                                 
|                                                        | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        
|                                                        | Item 9A. Controls and Procedures                                                                                    
|PART III                                               
|                                                        | Item 10. Directors and Executive Officers of the Registrant                                                         
|                                                        | Item 11. Executive Compensation                                                                                     
|                                                        | Item 12. Security Ownership of Certain Beneficial Owners and Management                                             
|                                                        | Item 13. Certain Relationships and Related Transactions                                                             
|                                                        | Item 14. Principal Accountant Fees and Services                                                                     
|PART IV                                                
|                                                        | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                                            
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
|REPORT OF INDEPENDENT AUDITORS                         
|REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS               
|CONSOLIDATED BALANCE SHEETS                            
|CONSOLIDATED STATEMENTS OF INCOME                      
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY        
|CONSOLIDATED STATEMENTS OF CASH FLOWS                  
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS             
|SCHEDULE II                                            
|SIGNATURES                                             
|EX-10.7 1992 LONG TERM INCENTIVE PLAN, AS AMENDED      
|EX-10.8 EMPLOYMENT AGREEMENT (RICHARD F. BECKER)       
|EX-10.9 CHANGE OF CONTROL SEVERENCE AGREEMENT          
|EX-10.10 EMPLOYMENT AGREEMENT (DAVID L. BROWN)         
|EX-21 SUBSIDIARIES OF THE COMPANY                      
|EX-23 CONSENT OF PRICEWATERHOUSECOOPERS LLP            
|EX-31.1 CERTIFICATION OF THE C.E.O.                    
|EX-31.2 CERTIFICATION OF THE C.F.O.                    
|EX-32.1 SECT. 906 CERTIFICATION OF THE C.E.O.          
|EX-32.2 SECT. 906 CERTIFICATION OF THE C.F.O.          



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PART I




Item 1.Business

General

We were 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, we changed our name to National
Dentex Corporation and acquired 20 additional full-service
dental laboratories and related branch laboratories from
Lifemark Corporation. Our acquisition strategy is to consolidate
within the dental laboratory industry and use our financial and
operational synergies to create a competitive advantage. Over
the last five years we have acquired the following stand-alone
laboratory facilities: in 1999, Advanced Dental Arts; in 2000,
Oral Arts and Ideal Dental; in 2001, Creative Dental Ceramics,
Bauer Dental Studio, Aronovitch Dental, Crown Dental Studio and
The Freeman Center; in 2002, Fox Dental and E&S Dental; and,
in 2003, Salem Dental, Top Quality Partials, Midtown Dental and
Thoele Dental. In addition, we acquired various smaller
laboratories and consolidated them into existing operations.

We currently own and operate 40 dental
laboratories, consisting of 38 full-service dental laboratories
and two branch laboratories located in 29 states throughout
the United States. Our 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. Our principal executive offices are located
at 526 Boston Post Road, Wayland, MA 01778, telephone
number (508) 358-4422. Our corporate web site is located at
www.nationaldentex.com. We make available free of charge
through our website our annual Form 10-K, quarterly 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

Our 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

Our 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 our products.

Our products are grouped into the following three
main categories:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Restorative
    Products.Restorative products that
    our dental laboratories sell 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, we also make 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. We also make inlays, which
    are restorations made to fit a prepared tooth cavity and then
    cemented into place.
|
| | Reconstructive
    Products.Reconstructive products sold
    by our 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. We also sell
    precision attachments, which 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.                                                                                                                                                                   

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cosmetic Products.Cosmetic products sold by our 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. We also sell 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

Our 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. Our
dental laboratories perform numerous quality control checks
throughout the production cycle to improve the quality of our
products and to make certain the design and appearance satisfy
the needs of the dentist and the patient. Our 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.

We operate each of our 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 our 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 our cash and stock incentive plans.

Our corporate management provides our overall
strategy, direction and financial management and negotiates all
acquisitions. Corporate personnel also support the operations of
our dental laboratories by performing functions that 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. Our
corporate management provides marketing, financial and
administrative services, negotiates national purchasing
arrangements, and sets quality and performance standards for the
dental laboratories.

Sales and Marketing

The majority of our 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. Our
customer-focused marketing and sales program, entitled the
NDX Reliance ProgramTM, 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 our qualified laboratories from their many
competitors. We believe 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 our
ability to expand our base of business by establishing lasting
professional relationships with our customers. We presently have
a total of 35 sales representatives. In addition, our
dental laboratories, alone or with local dental societies,
dental schools or study clubs, sponsor technical training
clinics for dentists and their staffs on topics such as advanced
clinical techniques. The local dental laboratories also exhibit
at state and local dental conventions.

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. We

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estimate that our sales presently 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
business units, although we recognize that there are several
other multiple-location operators including, the Sentage
Corporation d/b/a Dental Services Group, Dental Technologies,
Inc. and Americus Dental Labs, Inc. These privately-held groups
compete with us in several market areas. We also face
competition from various mail order dental laboratories, most
notably Glidewell Laboratories. The industry itself faces
growing competition as the domestic industry begins to confront
globalization. Competition for business is expected to intensify
from the developing manufacturing capabilities of countries such
as China, the Phillipines and Mexico. We continue to evaluate
both the threats and opportunities arising from foreign
competition and their inherent labor cost advantages.


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, we believe that most dentists
consider product quality and consistency, service, and breadth
of product line to be equally important. We believe that we
compete favorably with respect to all of these factors. We
consider that our ability to produce quality products locally,
to deliver such products on a timely basis, to provide
convenience for the dentist through the breadth of our product
line, and our sponsorship of educational clinics, provide a
competitive advantage over other dental laboratories in the
local markets in which our dental laboratories operate. Our
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 us from the many smaller dental
laboratories which do not have comparable resources to provide
these products. While such specialty products presently
represent less than 20% of our business, we believe that the
ability to offer these products is essential for dental
laboratories to remain competitive.

Employees

As of December 31, 2003, we had 1,621
employees, 1,584 of whom worked at individual laboratories.
Corporate management and administrative staff totaled
37 people. None of our employees are covered by a
collective bargaining agreement. Management considers our
employee relations to be good.

Intellectual Property

Our general technological know-how and experience
are important to the conduct of our business. We have several
trademarks and licenses to use trademarks, but do not deem any
of such trademarks or licenses to be material to the overall
conduct of our business. Each of our dental laboratories
operates under its own trade name, and we consider these trade
names to be important to the goodwill of our business.
Additionally, the continued focus and investment in the
NDX Reliance ProgramTM, our national
marketing program, is expected to continue to assist in the
generation and maintenance of the goodwill of our dental
laboratories.

Backlog

Due to the individualized and customized nature
of most dental products and a typical turnaround product cycle
in the dental laboratory industry of less than seven days, there
was no significant backlog of orders existing at
December 31, 2003 and 2002.






|        |           
|------- | ----------
|Item 2. | Properties

We currently lease a total of approximately
233,000 square feet of space. As of December 31, 2003,
the future aggregate minimum annual rent payable for all of our
leased real properties was approximately $9,897,000. We consider
these properties to be modern, well maintained and suitable for
our purposes and believe that our current facilities are
adequate to meet our needs for the foreseeable future. We also
believe that suitable substitute or replacement space is readily
available at reasonable rental rates. Our principal

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executive and administrative offices occupy
approximately 10,000 square feet of space in Wayland,
Massachusetts. Our 33 leased dental laboratories range in size
from 1,000 to 26,000 square feet and average approximately
$59,000 in annual base rent.


We own seven of our 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

We are involved from time to time in litigation
incidental to our business. Our management believes that the
outcome of current litigation will not have a material adverse
effect upon our operations or financial condition and will not
disrupt our normal operations.






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

None.




PART II






|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

Trading Market

Our 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. Our common stock
became publicly-traded on December 21, 1993.

|               |  |         |        |          |  |   |        | 
|-------------- |  | ------- | ------ | -------- |  | - | ------ | 
|               |  |        
|               |  | Price  
|               |  |        
|Quarter Ending |  | Low Bid |        | High Bid
|               |  |         |        |         
|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 | 
|03/31/03       |  | $       | 17.250 |          |  | $ | 20.450 | 
|06/30/03       |  | $       | 17.950 |          |  | $ | 21.500 | 
|09/30/03       |  | $       | 20.070 |          |  | $ | 24.040 | 
|12/31/03       |  | $       | 19.120 |          |  | $ | 24.400 | 

We have paid no cash dividends in the past and
have no plans to pay cash dividends in the foreseeable future.

On February 20, 2004, there were
approximately 415 registered record holders of our common stock,
which we believe represented approximately 1,470 beneficial
holders. On February 20, 2004, the low and high bid prices
of our common stock were $26.32 and $26.62, respectively.

Stock Plan Disclosure

We maintain two incentive stock option plans that
were approved by our Board of Directors (the Board).
In 1992 the Board and stockholders adopted the 1992 Long-Term
Incentive Plan (1992 LTIP).

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


|          |       |                     |         |                     |  |                     |       |       |  |  |        |        | 
|--------- | ----- | ------------------- | ------- | ------------------- |  | ------------------- | ----- | ----- |  |  | ------ | ------ | 
|          |       | Number of Shares of |         |                     |  | Number of Shares   
|          |       | National Dentex     |         |                     |  | of National Dentex 
|          |       | Corporation Common  |         |                     |  | Corporation        
|          |       | Stock to be Issued  |         | Weighted Average    |  | Common Stock       
|          |       | Upon Exercise of    |         | Exercise Price of   |  | Remaining Available
|          |       | Outstanding Options |         | Outstanding Options |  | for Future Issuance
|          |       |                     |         |                     |  |                    
|1992 LTIP |       |                     | 341,313 |                     |  | $                   | 17.80 |       |  |  | None   |       
|2001 Plan |       |                     | 298,300 |                     |  | $                   | 21.88 |       |  |  | 1,700  | (a)   
|ESPP      |       |                     |        |                     |  |                     |      |       |  |  | 82,055 |       
|          |       |                     |         |                     |  |                     |       |       |  |  |        |       
|          | Total |                     |         | 639,613             |  |                     | $     | 19.70 |  |  |        | 83,755 | 
|          |       |                     |         |                     |  |                     |       |       |  |  |        |       



---



|    |                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Does not include an additional
    250,000 shares of common stock proposed to be added to the
    2001 Plan, as described under Proposal 2 in the
    Companys Proxy Statement for the Special Meeting in Lieu
    of Annual Meeting of Stockholders to be held on April 13,
    2004.






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

The following selected financial data for the
five years ended December 31, 2003 are derived from the
audited consolidated financial statements. The consolidated
financial statements for fiscal years 1999 through 2001 were
audited by Arthur Andersen LLP (Andersen) which has
ceased operations. A copy of the report previously issued by
Andersen 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.

|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------- |  | ------------------------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                  |  | 1999                                 |        | 2000 |  | 2001 |        | 2002 |  | 2003
|                                                  |  |                                      |        |      |  |      |        |      |  |     
|                                                  |  |                                     
|                                                  |  | (In thousands except per share data)
|Consolidated Statements of Income:                |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Net sales                                         |  | $                                    | 69,639 |      |  | $    | 75,680 |      |  | $    | 85,725 |  |  | $ | 95,185 |  |  | $ | 99,274 | 
|Cost of goods sold                                |  |                                      | 40,396 |      |  |      | 44,203 |      |  |      | 50,278 |  |  |   | 56,196 |  |  |   | 59,534 | 
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Gross profit                                      |  |                                      | 29,243 |      |  |      | 31,477 |      |  |      | 35,447 |  |  |   | 38,989 |  |  |   | 39,740 | 
|Selling, general & administrative
    expenses    |  |                                      | 20,803 |      |  |      | 22,133 |      |  |      | 25,631 |  |  |   | 29,332 |  |  |   | 30,102 | 
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Operating income                                  |  |                                      | 8,440  |      |  |      | 9,344  |      |  |      | 9,816  |  |  |   | 9,657  |  |  |   | 9,638  | 
|Other expense                                     |  |                                      | 57     |      |  |      | 83     |      |  |      | 128    |  |  |   | 211    |  |  |   | 296    | 
|Interest income                                   |  |                                      | 336    |      |  |      | 568    |      |  |      | 229    |  |  |   | 80     |  |  |   | 21     | 
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Income before provision for income taxes          |  |                                      | 8,719  |      |  |      | 9,829  |      |  |      | 9,917  |  |  |   | 9,526  |  |  |   | 9,363  | 
|Provision for income taxes                        |  |                                      | 3,457  |      |  |      | 3,868  |      |  |      | 3,939  |  |  |   | 3,644  |  |  |   | 3,606  | 
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Net income                                        |  | $                                    | 5,262  |      |  | $    | 5,961  |      |  | $    | 5,978  |  |  | $ | 5,882  |  |  | $ | 5,757  | 
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Net income per share  basic                      |  | $                                    | 1.48   |      |  | $    | 1.67   |      |  | $    | 1.72   |  |  | $ | 1.70   |  |  | $ | 1.68   | 
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Net income per share  diluted                    |  | $                                    | 1.48   |      |  | $    | 1.66   |      |  | $    | 1.68   |  |  | $ | 1.66   |  |  | $ | 1.66   | 
|                                                  |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Weighted average shares outstanding 
    basic   |  |                                      | 3,544  |      |  |      | 3,569  |      |  |      | 3,479  |  |  |   | 3,458  |  |  |   | 3,420  | 
|Weighted average shares outstanding 
    diluted |  |                                      | 3,566  |      |  |      | 3,601  |      |  |      | 3,562  |  |  |   | 3,553  |  |  |   | 3,477  | 

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|                                          |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|----------------------------------------- |  | ------------------------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                          |  | 1999                                 |        | 2000 |  | 2001 |        | 2002 |  | 2003
|                                          |  |                                      |        |      |  |      |        |      |  |     
|                                          |  |                                     
|                                          |  | (In thousands except per share data)
|Consolidated Balance Sheet Data:          |  |                                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Working capital                           |  | $                                    | 16,713 |      |  | $    | 19,455 |      |  | $    | 15,060 |  |  | $ | 15,499 |  |  | $ | 12,252 | 
|Total assets                              |  |                                      | 49,205 |      |  |      | 55,390 |      |  |      | 62,083 |  |  |   | 65,817 |  |  |   | 72,233 | 
|Long-term debt, including current portion |  |                                      |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|Stockholders equity                      |  | $                                    | 39,549 |      |  | $    | 45,596 |      |  | $    | 49,027 |  |  | $ | 53,946 |  |  | $ | 60,140 | 






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

The following discussion should be read in
conjunction with the Consolidated Financial Statements

and the related notes that appear elsewhere in
this document.


Overview

We serve an active customer base of over
18,000 dentists through dental laboratories located in
29 states. Our business consists of a single industry
segment, which is the design, fabrication, marketing and sale of
custom dental prosthetic appliances for dentists located
primarily in the domestic marketplace. Product offerings include:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Restorative products that are permanently affixed
    by a dentist to a patients existing dental anatomy,
    including traditional porcelain fused to metal crowns and
    bridges and dental implants.                                                                                                                                                                                                                                                                                                                                           
|
| | Reconstructive products that are removable
    prostheses that replace missing teeth and associated structures,
    including partial and full dentures.                                                                                                                                                                                                                                                                                                                                                                                            
|
| | Cosmetic products that consist primarily of
    porcelain veneers designed to enhance the appearance of the
    front of a tooth as well as all ceramic crowns that are made
    without a traditional metal substructure and more closely
    replicates the appearance of natural teeth. This category also
    includes 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.

Internal revenue growth has been relatively flat
over the past three years. Early in 2001, we made note that the
economic climate appeared to be impacting the dental laboratory
industry. In 2002, we began to believe that many patients and
dentists were postponing optimal treatment plans, such as
crowns, and pursuing less expensive alternatives such as amalgam
fillings, for which we recognize no revenue. As a result, sales
of restorative products were unfavorably impacted. We believe
that while a portion of this segment can be temporarily deferred
by patients, the work will eventually be required and will be
done. During 2003, the economic situation was much like that in
2002, although we have seen some recent favorable signs in the
marketplace that industry growth may be returning to more
positive trends.

We have also continued to pursue an acquisition
strategy, which has played an important role in helping us
increase sales from $75,680,000 in 2000 to $99,274,000 in 2003.
However, operating margins as measured as a percentage of sales
declined over this period. The main cost drivers for us are the
cost of labor and related employee benefits. Competition for
labor resources and increases in medical insurance costs drive
these costs higher. These increased costs combined with flat
internal sales growth have contributed to lower operating
margins. During 2003, we reviewed and adjusted staffing levels
at each of our locations to minimize the costs of the slowdown
in sales growth. We have been cautious about labor reductions
due to the need to maintain an available and properly trained
workforce in anticipation of future sales growth. Beginning in
the fourth quarter of 2001 and continuing through 2003, we first
developed and subsequently continued to invest in the NDX
Reliance ProgramTM, a national marketing and
branding campaign that we believe holds long term value and will
help us attain our sales objectives.

6



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##### Table of Contents



Liquidity and Capital
Resources

Our working capital decreased from $15,499,000 at
December 31, 2002 to $12,252,000 at December 31, 2003.
Cash and equivalents decreased $3,973,000 from $5,808,000 at
December 31, 2002 to $1,835,000 at December 31, 2003.
Operating activities provided $7,151,000 in cash flow for the
year ended December 31, 2003.

Existing cash and cash equivalents along with
cash flows from operating activities were sufficient to cover
cash used in investing activities. Cash outflows related to
dental laboratory acquisitions totaled $8,798,000 for the year
ended December 31, 2003 compared to $4,696,000 for the year
ended December 31, 2002. The increase was primarily
attributable to a higher level of acquisition activity in 2003
compared to 2002. During 2003, we acquired approximately
$10,477,000 in assets compared to $4,039,000 in 2002. Capital
expenditures for 2003 were $2,715,000 compared to $2,156,000 in
2002.

During the year ended December 31, 2003, we
issued 2,595 shares of common stock from treasury stock as
directors fees at a total cost of $48,000. We maintain a
stock repurchase program and may repurchase stock from time to
time in open market or privately negotiated transactions. We are
authorized to repurchase an additional 137,800 shares as of
December 31, 2003.

We maintain a financing agreement (the
Agreement) with Citizens Bank of Massachusetts (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) plus 1.5%, at our
option. Both revolving lines of credit mature on June 30,
2004. We are currently evaluating competitive proposals to both
increase and extend our current credit facilities. We expect to
finalize new agreements in April 2004 and do not anticipate any
difficulties in concluding new lending arrangements.

A commitment fee of one eighth of 1% is payable
on the unused amount of both lines of credit. At
December 31, 2003, the full principal amount was available
to us 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, 2003, we were in compliance with these
covenants.

Our management believes that cash flow from
operations and available financing will be sufficient to meet
contemplated operating and capital requirements, including costs
associated with anticipated acquisitions, if any and deferred
payments associated with prior acquisitions for the foreseeable
future.

Commitments and Contingencies

The following table represents a list of our
contractual obligations and commitments as of December 31,
2003:

Payments Due By Period

|                                     |             |       |           |             |  |           |           |           |  |              |           |           |  |  |   |           |  |  |   |           | 
|------------------------------------ | ----------- | ----- | --------- | ----------- |  | --------- | --------- | --------- |  | ------------ | --------- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                     |             |       |           | Less Than 1 |  |           |           |           |  | Greater Than
|                                     |             | Total |           | Year        |  | 1-3 Years |           | 4-5 Years |  | 5 Years     
|                                     |             |       |           |             |  |           |           |           |  |             
|Operating Leases:                    |             |       |           |             |  |           |           |           |  |              |           |           |  |  |   |           |  |  |   |          
|                                     | Real Estate |       | $         | 9,897,000   |  |           | $         | 2,125,000 |  |              | $         | 4,765,000 |  |  | $ | 1,379,000 |  |  | $ | 1,628,000 | 
|                                     | Vehicles    |       |           | 921,000     |  |           |           | 624,000   |  |              |           | 297,000   |  |  |   |          |  |  |   |          | 
|                                     | Equipment   |       |           | 168,000     |  |           |           | 93,000    |  |              |           | 74,000    |  |  |   | 1,000     |  |  |   |          | 
|Laboratory Purchase Obligations      |             |       | 2,696,000 |             |  |           | 2,392,000 |           |  |              | 304,000   |           |  |  |  |           |  |  |  |          
|Contingent Laboratory Purchase Price |             |       | 2,830,000 |             |  |           | 943,000   |           |  |              | 1,887,000 |           |  |  |  |           |  |  |  |          
|                                     |             |       |           |             |  |           |           |           |  |              |           |           |  |  |   |           |  |  |   |          
|                                     | TOTAL       |       | $         | 16,512,000  |  |           | $         | 6,177,000 |  |              | $         | 7,327,000 |  |  | $ | 1,380,000 |  |  | $ | 1,628,000 | 
|                                     |             |       |           |             |  |           |           |           |  |              |           |           |  |  |   |           |  |  |   |          

7



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Laboratory purchase obligations totaling
$2,696,000 classified as deferred acquisition costs are
presented in the liability section of the balance sheet.
Contingent laboratory purchase price includes amounts subject to
acquisition agreements that are tied to earnings performance, as
defined, over a three year period. As payments become
determinable, they are recorded as goodwill. We are committed
under various non-cancelable operating lease agreements covering
our office space and dental laboratory facilities, vehicles and
certain equipment. Certain of these leases also require us to
pay maintenance, repairs, insurance and related taxes.

As sponsor of the National Dentex Corporation
Dollars Plus Plan, (the Plan), a qualified plan
under Section 401(a) of the Internal Revenue Code, we are
preparing to file a retroactive plan amendment under the
Internal Revenue Services Voluntary Correction Program to
clarify the definition of compensation in the Plan. Based on our
consultation with our ERISA counsel, we believe this issue will
be favorably resolved without requiring additional employer
contributions or jeopardizing the tax-qualified status of the
Plan.

Results of Operations

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

|                                             |  |                           |       |      |  |      |       |   |  |  |       |  
|-------------------------------------------- |  | ------------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                             |  |                          
|                                             |  | ?Years Ended December 31,
|                                             |  |                          
|                                             |  | 2001                      |       | 2002 |  | 2003
|                                             |  |                           |       |      |  |     
|Net sales                                    |  |                           | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|Cost of goods sold                           |  |                           | 58.7  |      |  |      | 59.0  |   |  |  | 60.0  |  
|                                             |  |                           |       |      |  |      |       |   |  |  |       |  
|Gross profit                                 |  |                           | 41.3  |      |  |      | 41.0  |   |  |  | 40.0  |  
|Selling, general and administrative expenses |  |                           | 29.9  |      |  |      | 30.9  |   |  |  | 30.3  |  
|                                             |  |                           |       |      |  |      |       |   |  |  |       |  
|Operating income                             |  |                           | 11.4  |      |  |      | 10.1  |   |  |  | 9.7   |  
|Other expense                                |  |                           | 0.1   |      |  |      | 0.2   |   |  |  | 0.3   |  
|Interest income                              |  |                           | 0.3   |      |  |      | 0.1   |   |  |  | 0.0   |  
|                                             |  |                           |       |      |  |      |       |   |  |  |       |  
|Income before provision for income taxes     |  |                           | 11.6  |      |  |      | 10.0  |   |  |  | 9.4   |  
|Provision for income taxes                   |  |                           | 4.6   |      |  |      | 3.8   |   |  |  | 3.6   |  
|                                             |  |                           |       |      |  |      |       |   |  |  |       |  
|Net income                                   |  |                           | 7.0   | %    |  |      | 6.2   | % |  |  | 5.8   | %
|                                             |  |                           |       |      |  |      |       |   |  |  |       |  

Year Ended December 31, 2003 Compared
with Year Ended December 31, 2002



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

For the year ended December 31, 2003, net
sales increased $4,089,000 or 4.3% over the prior year. Net
sales increased by approximately $4,525,000 as a result of
acquisitions, measured by business at dental laboratories owned
less than one year. Net sales declined approximately $436,000,
or 0.5% at dental laboratories owned for both the year ended
December 31, 2003 and the comparable year ended
December 31, 2002.



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

Our cost of goods sold increased by $3,338,000 or
5.9% in the fiscal year ended December 31, 2003 over the
prior fiscal year, attributable primarily to increased unit
sales. As a percentage of sales, cost of goods sold increased
from 59.0% to 60.0%. Increases in labor and related expenses
were partially offset by decreases in materials costs. Our labor
reduction program instituted during the second half of the year
helped to mitigate labor costs, although health care costs
continued to increase. During the fourth quarter, we revised our
health insurance plan in an attempt to control these increasing
medical costs by implementing design changes and cost sharing
with employees. The decrease in material cost as a percentage of
sales was primarily attributable to the continued implementation
of various pricing strategies along with new supplier purchasing
agreements.

8



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##### Table of Contents





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

Operating expenses, which consist of selling,
delivery and administrative expenses both at the laboratory and
corporate level, increased by $770,000 or 2.6% in the year ended
December 31, 2003 over 2002. During the same period
operating expenses decreased as a percentage of net sales from
30.9% in 2002 to 30.3% in 2003. Decreases in selling and
incentive compensation expenses as a percentage of sales were
offset slightly by increases in shipping costs. Selling costs
declined as spending on the NDX Reliance ProgramTM,
our national marketing program, were reduced from $878,000 in
2002 to $704,000 in 2003, as we transitioned from the original
rollout and branding phase, including development costs, into
more of a maintenance mode. Other marketing costs were reduced
from $601,000 in 2002 to $412,000 in 2003. In addition,
commission expense decreased by approximately $112,000 in 2003
compared to 2002. The decrease was primarily the result of an
ongoing restructuring of our sales force and related
compensation plans that we expect will improve internal sales
growth over the long term.



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

As a result of lower than expected internal sales
growth, attributable in large part to a continued unfavorable
economic climate, as well as increases in labor and medical
costs, partially offset by reductions in certain operating
expenses, our operating income declined by $19,000 to $9,638,000
for the year ended December 31, 2003 from $9,657,000 for
the prior year. As a percentage of net sales, operating income
declined from 10.1% in 2002 to 9.7% for 2003.



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

Interest income decreased by $59,000 or 0.1% in
the year ended December 31, 2003 from 2002. The decrease
was due to lower investment principal as we invested
approximately $7,306,000 in the acquisition of dental
laboratories during 2003.



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

The provision for income taxes decreased to
$3,606,000 in 2003 from $3,644,000 in 2002. This $38,000
decrease was primarily the result of decreased income. The 38.3%
effective tax rate for fiscal year 2002 increased to 38.5% for
fiscal year 2003.



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

As a result of all the factors discussed above,
net income decreased slightly to $5,757,000 or $1.66 per
share on a diluted basis in 2003 from $5,882,000 or
$1.66 per share on a diluted basis in 2002.

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,
or 0.6% at dental laboratories owned for both the year ended
December 31, 2002 and the comparable year ended
December 31, 2001.



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

Our 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 resulting from laboratory acquisitions. 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 and
related expenses 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

9



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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 we implemented a national marketing
program, the NDX Reliance ProgramTM, that
was introduced during October 2001. During 2001 and 2002, we
incurred advertising and marketing expenses related to the NDX
Reliance ProgramTM of approximately $141,000 and
$878,000, respectively.

During the year 2002 over the year 2001,
administrative expense at both the laboratory and corporate
level increased by approximately $2,700,000. In addition to the
added administrative costs from laboratories acquired during
2001 and 2002, we have increased our regional management team in
order to support our growing number of laboratories and our
national marketing program.

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 ProgramTM,
investments in the strengthening of our management team, and
increases in health and other insurance costs, coupled with the
current economic climate, our 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.

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 our financial statements are significantly affected
by complex accounting policies and methods. A summary of certain
of our significant accounting policies is presented below.

10



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##### Table of Contents



Summary of Significant Accounting
Policies



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

Revenue is recognized as the dentists
orders are shipped. Shipping and handling fees charged to
customers are recognized upon shipment. Shipping and handling
costs totaling approximately $7,091,000, $7,690,000 and
$8,354,000 for the years ended December 31, 2001, 2002 and
2003, respectively, are included in selling, general and
administrative expense.



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

Inventories, consisting principally of raw
materials, are stated at the lower of cost (first-in, first-out)
or market. We use estimates based on specific identification to
maintain proper reserves for excess and obsolete inventory.
Additionally, we estimate work in process inventories by
applying current labor, materials and selected overhead expense
rates to standard production schedules. Finally, we estimate the
value of unrefined precious metal scrap based on the application
of various return and refining statistics.



| |                              
| | -----------------------------
| | 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
$1,264,000, $1,436,000 and $1,630,000 for the years ended
December 31, 2001, 2002 and 2003, respectively.



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

At each balance sheet date, our management
evaluates the recoverability of long-lived assets, including
property and equipment and intangible assets, using certain
financial indicators, such as historical and future ability to
generate income from operations. Our 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 become less than the carrying
amount of the asset. We believe that no impairment of long-lived
assets existed as of December 31, 2002 and 2003.



| |             
| | ------------
| | 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. We
continually evaluate 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

11



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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. The Company
determines fair value using factors based on revenue and
operating margins. As of December 31, 2003, there has been
no impairment of goodwill.




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

We follow 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, we adopted the
disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. We have
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, 2001,
2002 and 2003.



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

In November 2002, the Financial Accounting
Standards Board (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 quarterly 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. We have adopted the disclosure provisions of this
pronouncement as of December 31, 2002. The adoption of the
financial provisions of this pronouncement on January 1,
2003 did not have a material effect on the results of the
Company.

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 we have adopted the amended
disclosure provisions at December 31, 2002. We have not
decided whether or not we will voluntarily change to the fair
value based method of accounting for stock-based employee
compensation at this time.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). This
interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, addresses
consolidation by business enterprises of variable interest
entities that possess certain characteristics. FIN 46
requires that if a business enterprise has a controlling
financial interest in a variable interest entity, the assets,
liabilities, and results of the activities of the variable
interest entity must be included in the consolidated financial
statements with those of the business enterprise. FIN 46,
as revised in December 2003, must be applied at the end of
periods ending after March 15, 2004, and is effective
immediately for all new variable interest entities created or
acquired after January 31, 2003. Our management does not
believe that the adoption of the revised FIN 46 will have a
material impact on our results of operations or financial

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position, as at this time we are not a party to
any variable interest entities. We will apply the consolidation
requirement of FIN 46 in future periods if we should own
any interest in any variable interest entity.


In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under
SFAS No. 133. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003
except for the provisions that were cleared by the FASB in prior
pronouncements. The adoption of SFAS No. 149 did not
have a material effect on our results.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity. SFAS No. 150 requires the classification
of certain financial instruments, previously classified within
the equity section of the balance sheet, to be included in
liabilities. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003 and
at the beginning of the first interim period beginning after
June 15, 2003 for all other financial instruments. The
adoption of SFAS No. 150 on July 1, 2003 did not
have a material effect on our results.

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. Our actual results
could differ materially from those set forth in the
forward-looking statements. Certain factors that could affect
capital expenditures, our requirements for capital, the costs
associated with anticipated acquisitions and our results of
operations include general economic conditions, the availability
of laboratories for purchase, our ability 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 our
clients, increases in labor, benefits 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

Our market risk exposure includes potential price
volatility of commodities we use in our manufacturing processes.
We purchase dental alloys that contain gold, palladium and other
precious metals. We have not participated in hedging
transactions. We have relied on pricing practices that attempt
to pass increased costs on to the customer, in conjunction with
materials substitution strategies.

13



---



##### Table of Contents








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

Quarterly Results

The following table sets forth certain selected
financial information for our eight most recent fiscal quarters.
In our opinion, 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 our Consolidated Financial
Statements and notes thereto contained herein.

|                             |  |                                              |        |          |  |           |        |          |  |           |        |          |  |           |        |          |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------- |  | -------------------------------------------- | ------ | -------- |  | --------- | ------ | -------- |  | --------- | ------ | -------- |  | --------- | ------ | -------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                             |  |                                             
|                             |  | Three Months Ended                          
|                             |  |                                             
|                             |  | March 31,                                    |        | June 30, |  | Sept. 30, |        | Dec. 31, |  | March 31, |        | June 30, |  | Sept. 30, |        | Dec. 31,
|                             |  | 2002                                         |        | 2002     |  | 2002      |        | 2002     |  | 2003      |        | 2003     |  | 2003      |        | 2003    
|                             |  |                                              |        |          |  |           |        |          |  |           |        |          |  |           |        |         
|                             |  |                                             
|                             |  | (Dollars in thousands except per share data)
|Net sales                    |  | $                                            | 23,414 |          |  | $         | 25,197 |          |  | $         | 23,364 |          |  | $         | 23,209 |          |  | $ | 23,965 |   |  | $ | 25,182 |   |  | $ | 24,357 |   |  | $ | 25,769 |  
|Gross profit                 |  | $                                            | 9,784  |          |  | $         | 10,735 |          |  | $         | 9,310  |          |  | $         | 9,160  |          |  | $ | 9,555  |   |  | $ | 10,305 |   |  | $ | 9,569  |   |  | $ | 10,310 |  
|Gross margin                 |  |                                              | 41.8   | %        |  |           | 42.6   | %        |  |           | 39.8   | %        |  |           | 39.5   | %        |  |   | 39.9   | % |  |   | 40.9   | % |  |   | 39.3   | % |  |   | 40.0   | %
|Operating income             |  | $                                            | 2,633  |          |  | $         | 3,198  |          |  | $         | 2,165  |          |  | $         | 1,660  |          |  | $ | 2,211  |   |  | $ | 2,778  |   |  | $ | 1,989  |   |  | $ | 2,660  |  
|Operating margin             |  |                                              | 11.2   | %        |  |           | 12.7   | %        |  |           | 9.3    | %        |  |           | 7.2    | %        |  |   | 9.2    | % |  |   | 11.0   | % |  |   | 8.2    | % |  |   | 10.3   | %
|Net income                   |  | $                                            | 1,569  |          |  | $         | 1,871  |          |  | $         | 1,302  |          |  | $         | 1,139  |          |  | $ | 1,332  |   |  | $ | 1,650  |   |  | $ | 1,277  |   |  | $ | 1,498  |  
|Net income per diluted share |  | $                                            | 0.44   |          |  | $         | 0.52   |          |  | $         | 0.37   |          |  | $         | 0.33   |          |  | $ | 0.39   |   |  | $ | 0.48   |   |  | $ | 0.37   |   |  | $ | 0.42   |  

Our 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, we believe
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
our employees, the number of paid vacation days and holidays in
the period and general economic conditions. Historically, the
second quarter has generated the highest quarterly net sales for
the year and has been the most profitable for us 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, our Board of
Directors, upon recommendation of its Audit Committee, engaged
PricewaterhouseCoopers LLP (PwC) as our auditors, to
replace Arthur Andersen LLP, which was ceasing operations.

During the two most recent fiscal years
immediately preceding our engagement of PwC and the interim
period through July 31, 2002, neither we, nor anyone on our
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.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a) Evaluation of Disclosure Controls and
Procedures. Our management, with the participation of our
Chief Executive Officer, or CEO, and Chief Financial Officer, or
CFO, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act) as of December 31, 2003.
In designing and evaluating our disclosure controls and
procedures, our management recognized that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives,
and our management necessarily applied its judgment in
evaluating the cost-benefit relationship of possible controls
and procedures. Based on this evaluation, our CEO and CFO
concluded that, as of December 31, 2003, our disclosure
controls and procedures were (1) designed to ensure that
material information relating to us, including our consolidated

14



---



##### Table of Contents



subsidiaries, is made known to our CEO and CFO by
others within those entities, particularly during the period in
which this report was being prepared and (2) effective, in
that they provide reasonable assurance that information required
to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms.


(b) Changes in Internal Controls. No
change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act) occurred during the fiscal quarter
ended December 31, 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.




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 our Proxy Statement dated
March 12, 2004 for the Special Meeting in Lieu of Annual
Meeting of Shareholders to be held on April 13, 2004 (the
2004 Proxy Statement).

(b) Executive Officers. The information
with respect to executive officers required by this item is
incorporated herein by reference from the 2004 Proxy Statement.






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

The information required by this item is
incorporated herein by reference from the 2004 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 2004 Proxy Statement.






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

The information required by this item is
incorporated herein by reference from the 2004 Proxy Statement.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The response to this item is contained in our
2004 Proxy Statement under the caption Independent
Auditors Fees and Other Matters, and is incorporated
herein by reference.




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. 

15



---



##### Table of Contents





| |                                                                          
| | -------------------------------------------------------------------------
| | 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 Auditors 
    PricewaterhouseCoopers LLP, February 6, 2004                       |  |      | F-2 | 
|Report of Independent Public
    Accountants  Arthur Andersen LLP, February 8,
    2002                |  |      | F-3 | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2003                                        |  |      | F-4 | 
|Consolidated Statements of Income for each of the
    three years ended December 31, 2003               |  |      | F-5 | 
|Consolidated Statements of Stockholders
    Equity for each of the three years ended December 31, 2003 |  |      | F-6 | 
|Consolidated Statements of Cash Flows for each of
    the three years ended December 31, 2003           |  |      | 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.

On October 23, 2003, the Company furnished a
Current Report on Form 8-K under Item 9, pursuant to
Item 12 containing a press release announcing the
Companys financial results for the fiscal quarter ended
September 30, 2003.

(c)Exhibits.



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | The exhibits listed in the Exhibit Index
    immediately preceding the exhibits are filed as part of this
    Annual Report on Form 10-K.

16



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##### Table of Contents



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 Auditors 
    PricewaterhouseCoopers LLP, February 6, 2004                                         |  |              | F-2 | 
|                      |                                                                                                               | Report of Independent Public
    Accountants  Arthur Andersen LLP, February 8,
    2002                                  |  |              | F-3 | 
|                      |                                                                                                               | Consolidated Balance Sheets as of
    December 31, 2002 and 2003                                                          |  |              | F-4 | 
|                      |                                                                                                               | Consolidated Statements of Income for each of the
    three years in the period ended December 31, 2003                   |  |              | F-5 | 
|                      |                                                                                                               | Consolidated Statements of Stockholders
    Equity for each of the three years in the period ended
    December 31, 2003 |  |              | F-6 | 
|                      |                                                                                                               | Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2003               |  |              | 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



---



##### Table of Contents






REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and

Stockholders 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 at December 31, 2003 and
2002, and the results of their operations and their cash flows
for each of the two years in the period ended December 31,
2003 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion,
the financial statement schedule for each of the two years in
the period ended December 31, 2003 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 audits.
We conducted our audits 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 audits provide a reasonable
basis for our opinion. The consolidated financial statements of
the Company listed in the accompanying index for the year 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 the year 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 for the year 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 in Note 4. In our opinion, the transitional
disclosures for 2001 in Note 4 are appropriate. However, we
were not engaged to audit, review, or apply any procedures to
the 2001 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 financial
statements taken as a whole.



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

Boston, Massachusetts

February 6, 2004


F-2



---



##### Table of Contents



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



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##### Table of Contents



NATIONAL DENTEX CORPORATION






CONSOLIDATED BALANCE SHEETS


|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |            |            | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ---------- | ------------ | ---------- |  | ---------- | ---------- | ---------- | 
|                                           |                                                                                                                                                                 | December 31,                                                       |            | December 31,
|                                           |                                                                                                                                                                 | 2002                                                               |            | 2003        
|                                           |                                                                                                                                                                 |                                                                    |            |             
|ASSETS                                    
|CURRENT ASSETS:                            |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           | Cash and cash equivalents                                                                                                                                       |                                                                    | $          | 5,808,435    |            |  | $          | 1,835,471  |           
|                                           | Accounts receivable:                                                                                                                                            |                                                                    |            |              |            |  |            |            |           
|                                           |                                                                                                                                                                 | Trade, less allowance of $307,000 in 2002 and
    $313,000 in 2003 |            |              | 10,041,989 |  |            |            | 11,497,927 | 
|                                           |                                                                                                                                                                 | Other                                                              |            |              | 442,154    |  |            |            | 416,093    | 
|                                           | Inventories of raw materials                                                                                                                                    |                                                                    |            | 5,558,316    |            |  |            | 5,996,483  |           
|                                           | Prepaid expenses                                                                                                                                                |                                                                    |            | 2,178,002    |            |  |            | 1,702,632  |           
|                                           | Deferred tax asset, current                                                                                                                                     |                                                                    |            | 270,829      |            |  |            | 481,539    |           
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           |                                                                                                                                                                 | Total current assets                                               |            |              | 24,299,725 |  |            |            | 21,930,145 | 
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|PROPERTY, PLANT AND EQUIPMENT:             |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           | Land and buildings                                                                                                                                              |                                                                    |            | 4,585,731    |            |  |            | 4,620,571  |           
|                                           | Leasehold and building improvements                                                                                                                             |                                                                    |            | 5,969,018    |            |  |            | 6,953,659  |           
|                                           | Laboratory equipment                                                                                                                                            |                                                                    |            | 10,192,772   |            |  |            | 11,328,266 |           
|                                           | Furniture and fixtures                                                                                                                                          |                                                                    |            | 3,392,192    |            |  |            | 4,617,170  |           
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           |                                                                                                                                                                 |                                                                    | 24,139,713 |              |            |  | 27,519,666 |           
|                                           | Less  Accumulated depreciation and
    amortization                                                                                                            |                                                                    |            | 12,613,976   |            |  |            | 14,169,829 |           
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           | Net property, plant and equipment                                                                                                                               |                                                                    |            | 11,525,737   |            |  |            | 13,349,837 |           
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|OTHER ASSETS, net:                         |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           | Goodwill                                                                                                                                                        |                                                                    |            | 24,123,203   |            |  |            | 30,443,508 |           
|                                           | Non-competition agreements                                                                                                                                      |                                                                    |            | 2,640,657    |            |  |            | 2,838,676  |           
|                                           | Deferred tax asset, non-current                                                                                                                                 |                                                                    |            | 186,895      |            |  |            |           |           
|                                           | Other assets                                                                                                                                                    |                                                                    |            | 3,040,654    |            |  |            | 3,670,427  |           
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           |                                                                                                                                                                 | Total other assets                                                 |            |              | 29,991,409 |  |            |            | 36,952,611 | 
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           |                                                                                                                                                                 | Total assets                                                       |            | $            | 65,816,871 |  |            | $          | 72,232,593 | 
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|LIABILITIES AND STOCKHOLDERS
    EQUITY  
|CURRENT LIABILITIES:                       |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           | Accounts payable                                                                                                                                                |                                                                    | $          | 1,961,915    |            |  | $          | 1,778,288  |           
|                                           | Accrued liabilities:                                                                                                                                            |                                                                    |            |              |            |  |            |            |           
|                                           |                                                                                                                                                                 | Payroll and employee benefits                                      |            |              | 4,285,269  |  |            |            | 5,106,325  | 
|                                           |                                                                                                                                                                 | Current portion of deferred purchase price                         |            |              | 2,325,932  |  |            |            | 2,391,951  | 
|                                           |                                                                                                                                                                 | Other accrued expenses                                             |            |              | 227,922    |  |            |            | 401,252    | 
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           |                                                                                                                                                                 | Total current liabilities                                          |            |              | 8,801,038  |  |            |            | 9,677,816  | 
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|LONG-TERM LIABILITIES:                     |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           | Payroll and employee benefits                                                                                                                                   |                                                                    |            | 1,525,903    |            |  |            | 1,981,751  |           
|                                           | Deferred purchase price                                                                                                                                         |                                                                    |            | 1,543,959    |            |  |            | 304,162    |           
|                                           | Deferred tax liability, non-current                                                                                                                             |                                                                    |            | _           |            |  |            | 128,603    |           
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           |                                                                                                                                                                 | Total long-term liabilities                                        |            |              | 3,069,862  |  |            |            | 2,414,516  | 
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|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  3,665,209 shares at December 31,
    2002 and 3,691,022 shares at December 31, 2003 |                                                                    |            |              |            |  |            |            |           
|                                           | Outstanding  3,403,009 shares at
    December 31, 2002 and 3,431,417 shares at
    December 31, 2003                                                           |                                                                    |            | 36,652       |            |  |            | 36,911     |           
|                                           | Paid-in capital                                                                                                                                                 |                                                                    |            | 16,643,963   |            |  |            | 17,034,343 |           
|                                           | Retained earnings                                                                                                                                               |                                                                    |            | 42,430,900   |            |  |            | 48,187,945 |           
|                                           | Treasury stock at cost 
    262,200 shares at December 31, 2002 and
    259,605 shares at December 31, 2003                                                    |                                                                    |            | (5,165,544   | )          |  |            | (5,118,938 | )         
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           |                                                                                                                                                                 | Total stockholders equity                                         |            |              | 53,945,971 |  |            |            | 60,140,261 | 
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           
|                                           |                                                                                                                                                                 | Total liabilities and stockholders equity                         |            | $            | 65,816,871 |  |            | $          | 72,232,593 | 
|                                           |                                                                                                                                                                 |                                                                    |            |              |            |  |            |           

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

F-4



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##### Table of Contents



NATIONAL DENTEX CORPORATION






CONSOLIDATED STATEMENTS OF INCOME


|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |            | 
|------------------------------------------------- | ---------------------------------------- | ------------ | ---------- | ------------ |  | ------------ | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                                  |                                          |             
|                                                  |                                          | Years Ended 
|                                                  |                                          |             
|                                                  |                                          | December 31, |            | December 31, |  | December 31,
|                                                  |                                          | 2001         |            | 2002         |  | 2003        
|                                                  |                                          |              |            |              |  |             
|Net sales                                         |                                          | $            | 85,725,076 |              |  | $            | 95,184,567 |            |  | $ | 99,273,550 |           
|Cost of goods sold                                |                                          |              | 50,278,363 |              |  |              | 56,195,536 |            |  |   | 59,533,766 |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|                                                  | Gross profit                             |              |            | 35,446,713   |  |              |            | 38,989,031 |  |   |            | 39,739,784 | 
|Selling, general and administrative expenses      |                                          |              | 25,631,096 |              |  |              | 29,332,366 |            |  |   | 30,101,751 |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|                                                  | Operating income                         |              |            | 9,815,617    |  |              |            | 9,656,665  |  |   |            | 9,638,033  | 
|Other expense                                     |                                          |              | 128,061    |              |  |              | 210,541    |            |  |   | 295,606    |           
|Interest income                                   |                                          |              | 229,497    |              |  |              | 79,610     |            |  |   | 20,558     |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|                                                  | Income before provision for income taxes |              |            | 9,917,053    |  |              |            | 9,525,734  |  |   |            | 9,362,985  | 
|Provision for income taxes                        |                                          |              | 3,939,325  |              |  |              | 3,644,087  |            |  |   | 3,605,940  |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|                                                  | Net income                               |              | $          | 5,977,728    |  |              | $          | 5,881,647  |  |   | $          | 5,757,045  | 
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|Net income per share  basic                      |                                          | $            | 1.72       |              |  | $            | 1.70       |            |  | $ | 1.68       |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|Net income per share  diluted                    |                                          | $            | 1.68       |              |  | $            | 1.66       |            |  | $ | 1.66       |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|Weighted average shares outstanding 
    basic   |                                          |              | 3,479,056  |              |  |              | 3,457,766  |            |  |   | 3,420,439  |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           
|Weighted average shares outstanding 
    diluted |                                          |              | 3,562,413  |              |  |              | 3,552,918  |            |  |   | 3,477,348  |           
|                                                  |                                          |              |            |              |  |              |            |            |  |   |            |           

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

F-5



---



##### Table of Contents



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, 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 |  
|Issuance of 9,460 shares of common stock
    under the stock option plans               |  |              | 9,460     |          |  |         | 95     |          |  |          | 128,483    |       |  |   |           |  |  |   |           |   |  |   | 128,578    |  
|Issuance of 16,353 shares of common stock
    under the employee stock purchase program |  |              | 16,353    |          |  |         | 164    |          |  |          | 260,496    |       |  |   |           |  |  |   |           |   |  |   | 260,660    |  
|Net income                                                                              |  |              |          |          |  |         |       |          |  |          |           |       |  |   | 5,757,045  |  |  |   |           |   |  |   | 5,757,045  |  
|Issuance of 2,595 shares of treasury stock
    as directors fees                       |  |              |          |          |  |         |       |          |  |          | 1,401      |       |  |   |           |  |  |   | 46,606     |   |  |   | 48,007     |  
|                                                                                        |  |              |           |          |  |         |        |          |  |          |            |       |  |   |            |  |  |   |            |   |  |   |            |  
|BALANCE, December 31, 2003                                                              |  |              | 3,691,022 |          |  | $       | 36,911 |          |  | $        | 17,034,343 |       |  | $ | 48,187,945 |  |  | $ | (5,118,938 | ) |  | $ | 60,140,261 |  
|                                                                                        |  |              |           |          |  |         |        |          |  |          |            |       |  |   |            |  |  |   |            |   |  |   |            |  

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

F-6



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##### Table of Contents



NATIONAL DENTEX CORPORATION






CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |            |             |  
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ---------- | ------------ | ----------- | ------------ | --------- | ---------- | ---------- | - | ---------- | ---------- | ----------- | -
|                                                                          |                                                                                                                       |                                                         
|                                                                          |                                                                                                                       | Years Ended                                             
|                                                                          |                                                                                                                       |                                                         
|                                                                          |                                                                                                                       | December 31,                                             |            | December 31, |             | December 31,
|                                                                          |                                                                                                                       | 2001                                                     |            | 2002         |             | 2003        
|                                                                          |                                                                                                                       |                                                          |            |              |             |             
|Cash flows from operating activities:                                     |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|                                                                          | Net income                                                                                                            |                                                          | $          | 5,977,728    |             |              | $         | 5,881,647  |            |   | $          | 5,757,045  |            
|                                                                          | Adjustments to reconcile net income to net cash
    provided by operating activities, net of effects of acquisitions: |                                                          |            |              |             |              |           |            |            |   |            |            |            
|                                                                          |                                                                                                                       | Depreciation and amortization                            |            |              | 2,922,091   |              |           |            | 2,106,922  |   |            |            | 2,383,260   |  
|                                                                          |                                                                                                                       | Provision (benefit) for deferred income taxes            |            |              | 10,175      |              |           |            | 274,172    |   |            |            | (118,867    | )
|                                                                          |                                                                                                                       | Issuance of common stock as directors fees              |            |              | 64,040      |              |           |            | 64,084     |   |            |            | 48,007      |  
|                                                                          |                                                                                                                       | Provision for bad debts                                  |            |              | 72,310      |              |           |            | 46,978     |   |            |            | 152,097     |  
|                                                                          | Changes in operating assets and liabilities, net
    of effects of acquisitions:                                      |                                                          |            |              |             |              |           |            |            |   |            |            |            
|                                                                          |                                                                                                                       | Decrease (increase) in accounts receivable               |            |              | 28,743      |              |           |            | (5,513     | ) |            |            | (332,991    | )
|                                                                          |                                                                                                                       | Increase in inventories                                  |            |              | (236,418    | )            |           |            | (220,027   | ) |            |            | (103,962    | )
|                                                                          |                                                                                                                       | (Increase) decrease in prepaid expenses                  |            |              | (510,672    | )            |           |            | (358,770   | ) |            |            | 478,938     |  
|                                                                          |                                                                                                                       | Increase in other assets                                 |            |              | (677,119    | )            |           |            | (327,895   | ) |            |            | (698,764    | )
|                                                                          |                                                                                                                       | Decrease in accounts payable and accrued
    liabilities |            |              | (215,512    | )            |           |            | (152,421   | ) |            |            | (414,018    | )
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|                                                                          |                                                                                                                       | Net cash provided by operating activities                |            |              | 7,435,366   |              |           |            | 7,309,177  |   |            |            | 7,150,745   |  
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|Cash flows from investing activities:                                     |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|                                                                          | Payment for acquisitions, net of cash acquired                                                                        |                                                          |            | (7,532,377   | )           |              |           | (2,836,985 | )          |   |            | (7,306,153 | )          
|                                                                          | Payment of deferred purchase price                                                                                    |                                                          |            | (1,573,660   | )           |              |           | (1,859,249 | )          |   |            | (1,491,619 | )          
|                                                                          | Additions to property, plant and equipment, net                                                                       |                                                          |            | (1,640,831   | )           |              |           | (2,155,685 | )          |   |            | (2,715,175 | )          
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|                                                                          |                                                                                                                       | Net cash used in investing activities                    |            |              | (10,746,868 | )            |           |            | (6,851,919 | ) |            |            | (11,512,947 | )
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|Cash flows from financing activities:                                     |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|                                                                          | Net proceeds from issuance of common stock                                                                            |                                                          |            | 620,922      |             |              |           | 597,826    |            |   |            | 389,238    |            
|                                                                          | Payments for repurchases of common stock                                                                              |                                                          |            | (3,232,000   | )           |              |           | (1,624,675 | )          |   |            |           |            
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|                                                                          |                                                                                                                       | Net cash (used in) provided by financing
    activities  |            |              | (2,611,078  | )            |           |            | (1,026,849 | ) |            |            | 389,238     |  
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|Net decrease in cash and cash equivalents                                 |                                                                                                                       |                                                          | (5,922,580 | )            |             |              | (569,591  | )          |            |   | (3,972,964 | )         
|Cash and cash equivalents at beginning of period                          |                                                                                                                       |                                                          | 12,300,606 |              |             |              | 6,378,026 |            |            |   | 5,808,435  |           
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|Cash and cash equivalents at end of period                                |                                                                                                                       | $                                                        | 6,378,026  |              |             | $            | 5,808,435 |            |            | $ | 1,835,471  |           
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|Supplemental disclosures of cash flow information:                        |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|                                                                          | Interest paid                                                                                                         |                                                          | $          | 11,900       |             |              | $         | 11,375     |            |   | $          | 11,184     |            
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|                                                                          | Income taxes paid                                                                                                     |                                                          | $          | 3,848,969    |             |              | $         | 4,172,637  |            |   | $          | 2,718,140  |            
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|Supplemental schedule of non-cash investing and
    financing activities: |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|                                                                          | The Company purchased the operations of certain
    dental laboratories in 2001, 2002 and 2003.                       |                                                          |            |              |             |              |           |            |            |   |            |            |            
|                                                                          | In connection with these acquisitions,
    liabilities were assumed as follows:                                       |                                                          |            |              |             |              |           |            |            |   |            |            |            
|                                                                          | Fair value of assets acquired                                                                                         |                                                          | $          | 12,889,000   |             |              | $         | 4,039,000  |            |   | $          | 10,477,000 |            
|                                                                          | Cash paid                                                                                                             |                                                          |            | (7,838,000   | )           |              |           | (3,212,000 | )          |   |            | (8,255,000 | )          
|                                                                          | Deferred purchase price at date of acquisition                                                                        |                                                          |            | (4,183,000   | )           |              |           | (245,000   | )          |   |            | (375,000   | )          
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           
|                                                                          |                                                                                                                       | Liabilities assumed                                      |            | $            | 868,000     |              |           | $          | 582,000    |   |            | $          | 1,847,000   |  
|                                                                          |                                                                                                                       |                                                          |            |              |             |              |           |            |            |   |            |           

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

F-7



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##### Table of Contents



NATIONAL DENTEX CORPORATION






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


December 31, 2003


(1) Organization

National Dentex Corporation (the
Company) owned and operated 38 full-service dental
laboratories and two branch laboratories in 29 states
throughout the United States as of December 31, 2003.
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, 2003. All significant intercompany balances
and transactions have been eliminated in consolidation.



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

Revenue is recognized as the dentists
orders are shipped. Shipping and handling fees charged to
customers are recognized upon shipment. Shipping and handling
costs totaling approximately $7,091,000, $7,690,000 and
$8,354,000 for the years ended December 31, 2001, 2002 and
2003, 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 $748,000, $1,480,000 and $1,116,000 for the years
ended December 31, 2001, 2002 and 2003, 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  | 

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

F-8



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##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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
$1,264,000, $1,436,000 and $1,630,000 for the years ended
December 31, 2001, 2002 and 2003, respectively.



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

At each balance sheet date, management evaluates
the recoverability of the long-lived assets, including property
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 become less than the carrying
amount of the asset. The Company believes that no impairment of
long-lived assets existed as of December 31, 2002 and 2003.



| |             
| | ------------
| | 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, 2003, 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.

F-9



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##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                   
| | ------------------
| | 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 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, 2001, 2002 and 2003 are as follows:

|                                                                                                                |  |                          |           |      |  |      |           |  |  |  |           | 
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                                                                                                |  |                         
|                                                                                                                |  | Years Ended December 31,
|                                                                                                                |  |                         
|                                                                                                                |  | 2001                     |           | 2002 |  | 2003
|                                                                                                                |  |                          |           |      |  |     
|Weighted average number of shares used in basic
    earnings per share calculation                              |  |                          | 3,479,056 |      |  |      | 3,457,766 |  |  |  | 3,420,439 | 
|Incremental shares under option plans                                                                           |  |                          | 83,357    |      |  |      | 95,152    |  |  |  | 56,909    | 
|                                                                                                                |  |                          |           |      |  |      |           |  |  |  |           | 
|Weighed average number of shares used in diluted
    earnings per share calculation                             |  |                          | 3,562,413 |      |  |      | 3,552,918 |  |  |  | 3,477,348 | 
|                                                                                                                |  |                          |           |      |  |      |           |  |  |  |           | 
|Shares under option plans excluded in computation
    of diluted earnings per share due to antidilutive effects |  |                          | 10,300    |      |  |      | 116,950   |  |  |  | 168,510   | 
|                                                                                                                |  |                          |           |      |  |      |           |  |  |  |           | 



| |                         
| | ------------------------
| | 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, 2001,
2002 and 2003. 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:

|                                                                                                                                                    |                      |                          |           |      |  |      |           |      |  |   |           |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------------------ | --------- | ---- |  | ---- | --------- | ---- |  | - | --------- | ---- | 
|                                                                                                                                                    |                      |                         
|                                                                                                                                                    |                      | Years Ended December 31,
|                                                                                                                                                    |                      |                         
|                                                                                                                                                    |                      | 2001                     |           | 2002 |  | 2003
|                                                                                                                                                    |                      |                          |           |      |  |     
|Stock-based employee compensation expense, as
    reported                                                                                          |                      | $                        |          |      |  | $    |          |      |  | $ |          |     
|                                                                                                                                                    |                      |                          |           |      |  |      |           |      |  |   |           |     
|Net income, as reported:                                                                                                                            |                      | $                        | 5,977,728 |      |  | $    | 5,881,647 |      |  | $ | 5,757,045 |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |                      |                          | 566,194   |      |  |      | 681,078   |      |  |   | 326,749   |     
|                                                                                                                                                    |                      |                          |           |      |  |      |           |      |  |   |           |     
|Pro forma net income                                                                                                                                |                      | $                        | 5,411,534 |      |  | $    | 5,200,569 |      |  | $ | 5,430,296 |     
|                                                                                                                                                    |                      |                          |           |      |  |      |           |      |  |   |           |     
|Earnings per share:                                                                                                                                 |                      |                          |           |      |  |      |           |      |  |   |           |     
|                                                                                                                                                    | As reported, basic   |                          | $         | 1.72 |  |      | $         | 1.70 |  |   | $         | 1.68 | 
|                                                                                                                                                    | Pro forma, basic     |                          |           | 1.56 |  |      |           | 1.50 |  |   |           | 1.59 | 
|                                                                                                                                                    | As reported, diluted |                          |           | 1.68 |  |      |           | 1.66 |  |   |           | 1.66 | 
|                                                                                                                                                    | Pro forma, diluted   |                          |           | 1.53 |  |      |           | 1.47 |  |   |           | 1.57 | 

F-10



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##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 2001, 2002 and 2003, respectively.

|                  |  |               |                |               |  |                     |           |                    |  |  |                  |  |  |  |      | 
|----------------- |  | ------------- | -------------- | ------------- |  | ------------------- | --------- | ------------------ |  |  | ---------------- |  |  |  | ---- | 
|                  |  | Risk-Free     |                |               |  |                     |           |                   
|Year Ended        |  | Interest Rate |                | Expected Life |  | Expected Volatility |           | Expected Dividends
|                  |  |               |                |               |  |                     |           |                   
|December 31, 2003 |  |               | 1.04% to 2.07% |               |  |                     | 1-3 Years |                    |  |  | 28.03% to 28.28% |  |  |  | None | 
|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 | 



| |                         
| | ------------------------
| | 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, 2001 and 2002, the Company repurchased
161,600 shares and 83,400 shares respectively, which
have been classified as treasury stock on the accompanying
consolidated balance sheet. In 2003 there were no common stock
repurchases; however the Company issued 2,595 shares from
treasury stock in payment of directors fees.



| |                 
| | ----------------
| | 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 non-owner 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

F-11



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##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 November 2002, the Financial Accounting
Standards Board (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 quarterly 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 guarantors 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 adoption of the financial provisions of this pronouncement
on January 1, 2003 did not have a material effect on the
results of the Company.

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 at 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.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). This
interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, addresses
consolidation by business enterprises of variable interest
entities that possess certain characteristics. FIN 46
requires that if a business enterprise has a controlling
financial interest in a variable interest entity, the assets,
liabilities, and results of the activities of the variable
interest entity must be included in the consolidated financial
statements with those of the business enterprise. FIN 46,
as revised in December 2003, must be applied at the end of
periods ending after March 15, 2004, and is effective
immediately for all new variable interest entities created or
acquired after January 31, 2003. Management does not
believe that the adoption of the revised FIN 46 will have a
material impact on the Companys results of operations or
financial position, as at this time the Company is not a party
to any variable interest entities. The Company will apply the
consolidation requirement of FIN 46 in future periods if
the Company should own any interest in any variable interest
entity.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under
SFAS No. 133. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003
except for the provisions that were cleared by the FASB in prior
pronouncements. The adoption of SFAS No. 149 did not
have a material effect on the results of the Company.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity. SFAS No. 150 requires the classification
of certain financial instruments, previously classified within
the equity section of the balance sheet, to be included in
liabilities. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003 and
at the

F-12



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##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

beginning of the first interim period beginning
after June 15, 2003 for all other financial instruments.
The adoption of SFAS No. 150 on July 1, 2003 did
not have a material effect on the results of the Company.

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

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

During 2003, the Company acquired the following
dental laboratory operations:

|                           |  |  |                | 
|-------------------------- |  |  | -------------- | 
|Nobilium of Texas          |  |  | March 2003     | 
|Accurate Dental Laboratory |  |  | April 2003     | 
|Jackson Dental Laboratory  |  |  | April 2003     | 
|Salem Dental Laboratory    |  |  | July 2003      | 
|Top Quality Partials       |  |  | September 2003 | 
|Midtown Dental Laboratory  |  |  | October 2003   | 
|Thoele Dental              |  |  | November 2003  | 

These acquisitions 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, 2002 and 2003:

|                                                                |                               |      |           |          |   |   |           |            |  
|--------------------------------------------------------------- | ----------------------------- | ---- | --------- | -------- | - | - | --------- | ---------- | -
|                                                                |                               | 2002 |           | 2003    
|                                                                |                               |      |           |         
|Total Purchase Price                                            |                               | $    | 3,457,000 |          |   | $ | 8,630,000 |           
|Less Fair Market Values Assigned to Assets and
    Liabilities: |                               |      |           |          |   |   |           |           
|                                                                | Cash                          |      |           | 375,000  |   |   |           | 949,000    |  
|                                                                | Accounts receivable           |      |           | 452,000  |   |   |           | 1,249,000  |  
|                                                                | Inventories                   |      |           | 118,000  |   |   |           | 739,000    |  
|                                                                | Property, plant and equipment |      |           | 483,000  |   |   |           | 995,000    |  
|                                                                | Non-compete agreements        |      |           | 310,000  |   |   |           | 334,000    |  
|                                                                | Other assets                  |      |           | 27,000   |   |   |           | 31,000     |  
|                                                                | Accounts payable              |      |           | (257,000 | ) |   |           | (329,000   | )
|                                                                | Accrued liabilities and other |      |           | (325,000 | ) |   |           | (1,518,000 | )
|                                                                |                               |      |           |          |   |   |           |           
|Goodwill                                                        |                               | $    | 2,274,000 |          |   | $ | 6,180,000 |           
|                                                                |                               |      |           |          |   |   |           |           

Acquired goodwill of approximately $836,000 and
$295,000 for acquisitions completed in 2002 and 2003,
respectively, are tax deductible over a fifteen-year period, as
allowed under Internal Revenue Service Code Section 197.

F-13



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##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In connection with these acquisitions, the
Company has incurred certain deferred purchase costs relating to
non-compete agreements with certain individuals, ranging over
periods of 5 to 10 years, and other contingent payments
provided for in the purchase agreements. The weighted-average
amortization period for acquisitions completed in 2002 and 2003
was 5.9 years and 8.8 years, respectively. The
Companys contingent laboratory purchase price liabilities
subject to acquisition agreements that are tied to earnings
performance, as defined, over a three year period are
approximately $2,830,000. As payments become determinable, they
are recorded as goodwill.

The following unaudited pro forma operating
results of the Company assume the acquisitions had been made as
of January 1, 2002. Such information includes adjustments
to reflect additional depreciation, non-compete amortization 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,
|                      |         | 2002         |             | 2003        
|                      |         |              |             |             
|Net sales             |         | $            | 108,544,000 |              |  | $ | 107,211,000 |     
|Net income            |         |              | 6,818,000   |              |  |   | 6,389,000   |     
|Net income per share: |         |              |             |              |  |   |             |     
|                      | Basic   |              | $           | 1.97         |  |   | $           | 1.87 | 
|                      | Diluted |              | $           | 1.92         |  |   | $           | 1.84 | 

(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

F-14



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##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

share in 2003 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,
|                                           |                                   | 2001         |           | 2002         |  | 2003        
|                                           |                                   |              |           |              |  |             
|Net income applicable to common stock      |                                   | $            | 5,977,728 |              |  | $            | 5,881,647 |      |  | $ | 5,757,045 |     
|Add back: Goodwill amortization            |                                   |              | 910,641   |              |  |              |          |      |  |   |          |     
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     
|Adjusted net income                        |                                   | $            | 6,888,369 |              |  | $            | 5,881,647 |      |  | $ | 5,757,045 |     
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     
|Computation of Basic Earnings per Share:   |                                   |              |           |              |  |              |           |      |  |   |           |     
|                                           | Reported basic earnings per share |              | $         | 1.72         |  |              | $         | 1.70 |  |   | $         | 1.68 | 
|                                           | Add back: Goodwill amortization   |              |           | .26          |  |              |           |     |  |   |           |     | 
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     
|Adjusted basic earnings per share          |                                   | $            | 1.98      |              |  | $            | 1.70      |      |  | $ | 1.68      |     
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     
|Computation of Diluted Earnings per Share: |                                   |              |           |              |  |              |           |      |  |   |           |     
|                                           | Reported earnings per share       |              | $         | 1.68         |  |              | $         | 1.66 |  |   | $         | 1.66 | 
|                                           | Add back: Goodwill amortization   |              |           | .26          |  |              |           |     |  |   |           |     | 
|                                           |                                   |              |           |              |  |              |           |      |  |   |           |     
|Adjusted diluted earnings per share        |                                   | $            | 1.94      |              |  | $            | 1.66      |      |  | $ | 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 quarters ended June 30, 2002 and 2003. The second step
of the goodwill impairment test measures the amount of the
impairment loss, if any. This measurement also 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, 2002 and 2003 are as
follows:

|                                                                              |  |              |            |              |  |   |            | 
|----------------------------------------------------------------------------- |  | ------------ | ---------- | ------------ |  | - | ---------- | 
|                                                                              |  |             
|                                                                              |  | Years Ended 
|                                                                              |  |             
|                                                                              |  | December 31, |            | December 31,
|                                                                              |  | 2002         |            | 2003        
|                                                                              |  |              |            |             
|Balance as of January 1                                                       |  | $            | 21,645,000 |              |  | $ | 24,123,000 | 
|Goodwill acquired during the year                                             |  |              | 2,274,000  |              |  |   | 6,180,000  | 
|Adjustments related to contingent consideration                               |  |              | 140,000    |              |  |   | 105,000    | 
|Adjustments related to the finalization of
    preliminary purchase estimates |  |              | 64,000     |              |  |   | 36,000     | 
|                                                                              |  |              |            |              |  |   |            | 
|Balance as of December 31                                                     |  | $            | 24,123,000 |              |  | $ | 30,444,000 | 
|                                                                              |  |              |            |              |  |   |            | 

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.

|                                |  |              |            |              |  |   |            |  
|------------------------------- |  | ------------ | ---------- | ------------ |  | - | ---------- | -
|                                |  |             
|                                |  | Years Ended 
|                                |  |             
|                                |  | December 31, |            | December 31,
|                                |  | 2002         |            | 2003        
|                                |  |              |            |             
|Non-competition agreements      |  | $            | 7,389,000  |              |  | $ | 8,349,000  |  
|Less: Accumulated amortization  |  |              | (4,748,000 | )            |  |   | (5,510,000 | )
|                                |  |              |            |              |  |   |            |  
|Non-competition agreements, net |  | $            | 2,641,000  |              |  | $ | 2,839,000  |  
|                                |  |              |            |              |  |   |            |  

F-15



---



##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Amortization expense associated with
non-competition agreements totaled approximately $747,000,
$656,000 and $761,000 for the years ended December 31,
2001, 2002 and 2003, respectively.

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

|           |  |   |           | 
|---------- |  | - | --------- | 
|2004       |  | $ | 724,000   | 
|2005       |  |   | 583,000   | 
|2006       |  |   | 438,000   | 
|2007       |  |   | 283,000   | 
|2008       |  |   | 198,000   | 
|Thereafter |  |   | 613,000   | 
|           |  |   |           | 
|           |  | $ | 2,839,000 | 
|           |  |   |           | 

(5) Income Taxes

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

|          |          |              |           |              |  |              |           |           |  |   |           |           |  
|--------- | -------- | ------------ | --------- | ------------ |  | ------------ | --------- | --------- |  | - | --------- | --------- | -
|          |          |             
|          |          | Years Ended 
|          |          |             
|          |          | December 31, |           | December 31, |  | December 31,
|          |          | 2001         |           | 2002         |  | 2003        
|          |          |              |           |              |  |             
|Federal  |          |              |           |              |  |              |           |           |  |   |           |          
|          | Current  |              | $         | 3,192,325    |  |              | $         | 2,703,114 |  |   | $         | 3,058,568 |  
|          | Deferred |              |           | 8,649        |  |              |           | 233,046   |  |   |           | (101,037  | )
|          |          |              |           |              |  |              |           |           |  |   |           |          
|          |          |              | 3,200,974 |              |  |              | 2,936,160 |           |  |   | 2,957,531 |          
|          |          |              |           |              |  |              |           |           |  |   |           |          
|State    |          |              |           |              |  |              |           |           |  |   |           |          
|          | Current  |              |           | 736,825      |  |              |           | 666,801   |  |   |           | 666,239   |  
|          | Deferred |              |           | 1,526        |  |              |           | 41,126    |  |   |           | (17,830   | )
|          |          |              |           |              |  |              |           |           |  |   |           |          
|          |          |              | 738,351   |              |  |              | 707,927   |           |  |   | 648,409   |          
|          |          |              |           |              |  |              |           |           |  |   |           |          
|          |          | $            | 3,939,325 |              |  | $            | 3,644,087 |           |  | $ | 3,605,940 |          
|          |          |              |           |              |  |              |           |           |  |   |           |          

Deferred income taxes are comprised of the
following at December 31, 2002 and 2003:

|                          |                                           |                                |         |            |            |   |         |            |            |  
|------------------------- | ----------------------------------------- | ------------------------------ | ------- | ---------- | ---------- | - | ------- | ---------- | ---------- | -
|                          |                                           | 2002                           |         | 2003      
|                          |                                           |                                |         |           
|Deferred Tax Assets:      |                                           |                                |         |            |            |   |         |           
|                          | Non-compete agreements                    |                                | $       | 619,489    |            |   | $       | 743,186    |           
|                          | Other liabilities                         |                                |         | 625,010    |            |   |         | 825,191    |           
|                          | Vacation benefits                         |                                |         | 137,898    |            |   |         | 195,420    |           
|                          | Inventory basis differences               |                                |         | 29,377     |            |   |         | 39,312     |           
|                          | Receivables basis differences             |                                |         | 65,299     |            |   |         | 64,687     |           
|                          | Other reserves                            |                                |         | 38,255     |            |   |         | 182,121    |           
|                          |                                           |                                |         |            |            |   |         |           
|                          |                                           | Total deferred tax assets      |         |            | 1,515,328  |   |         |            | 2,049,917  |  
|                          |                                           |                                |         |            |            |   |         |           
|Deferred Tax Liabilities: |                                           |                                |         |            |            |   |         |           
|                          | Depreciation and amortization differences |                                |         | (1,057,604 | )          |   |         | (1,696,981 | )         
|                          |                                           |                                |         |            |            |   |         |           
|                          |                                           | Total deferred tax liabilities |         |            | (1,057,604 | ) |         |            | (1,696,981 | )
|                          |                                           |                                |         |            |            |   |         |           
|Net deferred tax asset    |                                           | $                              | 457,724 |            |            | $ | 352,936 |           
|                          |                                           |                                |         |            |            |   |         |           

F-16



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##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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,
|                                                        |  | 2001         |      | 2002         |  | 2003        
|                                                        |  |              |      |              |  |             
|Statutory federal income tax rate                       |  |              | 34.0 | %            |  |              | 34.0 | % |  |  | 34.0 | %
|State income tax, net of federal income tax
    benefit |  |              | 4.9  |              |  |              | 4.6  | % |  |  | 4.6  | %
|Other                                                   |  |              | 0.8  |              |  |              | (0.3 | ) |  |  | (0.1 | )
|                                                        |  |              |      |              |  |              |      |   |  |  |      |  
|Effective income tax rate                               |  |              | 39.7 | %            |  |              | 38.3 | % |  |  | 38.5 | %
|                                                        |  |              |      |              |  |              |      |   |  |  |      |  

(6) Lines of Credit

The Company maintains a financing agreement (the
Agreement) with Citizens Bank of Massachusetts (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) 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, 2002 and 2003. The
Company is currently evaluating competitive proposals to both
increase and extend its current credit facilities. The
Companys management expects to finalize new agreements in
April 2004 and do not anticipate any difficulties in concluding
new lending arrangements.

A commitment fee of one-eighth of 1% is payable
on the unused amount of both revolving lines of credit. As of
December 31, 2003, 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, 2003, 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 years of service or upon attaining
age 65. The Company has incurred charges to operations of
approximately $398,000, $573,000 and $586,000 to match
contributions for the years ended December 31, 2001, 2002
and 2003, respectively.

The Company has a cash 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 by the participants
laboratory, as defined. The Company has incurred charges to
operations of approximately $2,725,000, $3,022,000 and
$2,790,000 for the years ended December 31, 2001, 2002 and
2003, 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 payroll 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

F-17



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##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of approximately $216,000, $317,000 and $304,000,
for the years ended December 31, 2001, 2002 and 2003,
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, 2001,
2002 and 2003, were approximately $284,000, $389,000 and
$479,000, 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, 2001, 2002
and 2003 was approximately $2,278,000, $2,699,000 and
$2,937,000, respectively. The approximate aggregate minimum
lease commitments under these leases as of December 31,
2003 are as follows:

|           |  |        |            | 
|---------- |  | ------ | ---------- | 
|Year       |  | Amount
|           |  |       
|2004       |  | $      | 2,842,000  | 
|2005       |  |        | 2,318,000  | 
|2006       |  |        | 1,621,000  | 
|2007       |  |        | 1,197,000  | 
|2008       |  |        | 830,000    | 
|Thereafter |  |        | 2,178,000  | 
|           |  |        |            | 
|           |  | $      | 10,986,000 | 
|           |  |        |            | 



| |                  
| | -----------------
| | 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.

The Company, as sponsor of the National Dentex
Corporation Dollars Plus Plan, (the Plan), a
qualified plan under Section 401(a) of the Internal Revenue
Code, is preparing to file a retroactive plan amendment under
the Internal Revenue Services Voluntary Correction Program
to clarify the definition of compensation in the Plan. Based on
the Companys consultation with its ERISA counsel, The
Company believes this issue will be favorably resolved without
requiring additional employer contributions or jeopardizing the
tax-qualified status of the Plan.



| |                                                            
| | -----------------------------------------------------------
| | 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 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

F-18



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##### Table of Contents



NATIONAL DENTEX CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2001,
2002 and 2003:

|                                               |           |        |         |                  |   |        |       |                  |  |        |         |                  |   |   |       |       |  |  |         |        |   |   |       |       | 
|---------------------------------------------- | --------- | ------ | ------- | ---------------- | - | ------ | ----- | ---------------- |  | ------ | ------- | ---------------- | - | - | ----- | ----- |  |  | ------- | ------ | - | - | ----- | ----- | 
|                                               |           |        |         |                  |   |       
|                                               |           | 2001   |         | 2002             |   | 2003  
|                                               |           |        |         |                  |   |       
|                                               |           |        |         | Weighted Average |   |        |       | Weighted Average |  |        |         | Weighted Average
|                                               |           | Shares |         | Exercise Price   |   | Shares |       | Exercise Price   |  | Shares |         | Exercise Price  
|                                               |           |        |         |                  |   |        |       |                  |  |        |         |                 
|Outstanding at beginning of year               |           |        | 315,751 |                  |   | $      | 16.33 |                  |  |        | 388,743 |                  |   | $ | 17.39 |       |  |  | 355,726 |        |   | $ | 17.67 |      
|                                               | Granted   |        |         | 104,500          |   |        |       | 20.25            |  |        |         | 9,100            |   |   |       | 24.73 |  |  |         |       |   |   |       |      | 
|                                               | Exercised |        |         | (25,826          | ) |        |       | 16.25            |  |        |         | (24,380          | ) |   |       | 14.66 |  |  |         | (9,460 | ) |   |       | 13.59 | 
|                                               | Canceled  |        |         | (5,682           | ) |        |       | 16.46            |  |        |         | (17,737          | ) |   |       | 19.36 |  |  |         | (4,953 | ) |   |       | 16.15 | 
|                                               |           |        |         |                  |   |        |       |                  |  |        |         |                  |   |   |       |       |  |  |         |        |   |   |       |      
|Outstanding at end of year                     |           |        | 388,743 |                  |   | $      | 17.39 |                  |  |        | 355,726 |                  |   | $ | 17.67 |       |  |  | 341,313 |        |   | $ | 17.80 |      
|                                               |           |        |         |                  |   |        |       |                  |  |        |         |                  |   |   |       |       |  |  |         |        |   |   |       |      
|Exercisable at end of year                     |           |        | 235,692 |                  |   | $      | 16.99 |                  |  |        | 254,976 |                  |   | $ | 17.12 |       |  |  | 300,667 |        |   | $ | 17.39 |      
|Weighted average fair value of options granted |           | $      | 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 12/31/03         |         | Contractual Life    |  | Per Share        |     | at 12/31/03 |  | Per Share       
|                           |  |                     |         |                     |  |                  |     |             |  |                 
|$12.25 to $15.00 per share |  |                     | 79,533  |                     |  |                  | 4.8 |             |  | $                | 12.78 |  |  |  | 79,533  |  |  | $ | 12.78 | 
|$15.25 to $20.13 per share |  |                     | 91,370  |                     |  |                  | 4.1 |             |  |                  | 17.02 |  |  |  | 91,370  |  |  |   | 17.02 | 
|$20.25 to $24.88 per share |  |                     | 170,410 |                     |  |                  | 6.0 |             |  |                  | 20.57 |  |  |  | 129,764 |  |  |   | 20.47 | 
|                           |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 
|                           |  |                     | 341,313 |                     |  |                  | 5.2 |             |  | $                | 17.80 |  |  |  | 300,667 |  |  | $ | 17.39 | 
|                           |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 

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-19



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##### Table of Contents



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, 2002 and 2003:

|                                               |           |        |         |                  |  |        |       |                  |  |        |         |                  |   |   |       |       |  |   |         |        |   |   |       |       | 
|---------------------------------------------- | --------- | ------ | ------- | ---------------- |  | ------ | ----- | ---------------- |  | ------ | ------- | ---------------- | - | - | ----- | ----- |  | - | ------- | ------ | - | - | ----- | ----- | 
|                                               |           |        |         |                  |  |       
|                                               |           | 2001   |         | 2002             |  | 2003  
|                                               |           |        |         |                  |  |       
|                                               |           |        |         | Weighted Average |  |        |       | Weighted Average |  |        |         | Weighted Average
|                                               |           | Shares |         | Exercise Price   |  | Shares |       | Exercise Price   |  | Shares |         | Exercise Price  
|                                               |           |        |         |                  |  |        |       |                  |  |        |         |                 
|Outstanding at beginning of year               |           |        | 116,750 |                  |  | $      | 20.47 |                  |  |        | 116,750 |                  |   | $ | 20.47 |       |  |   | 222,100 |        |   | $ | 22.51 |      
|                                               | Granted   |        |         |                 |  |        |       |                 |  |        |         | 108,500          |   |   |       | 24.66 |  |   |         | 77,900 |   |   |       | 20.05 | 
|                                               | Exercised |        |         |                 |  |        |       |                 |  |        |         |                 |   |   |       |      |  |   |         |       |   |   |       |      | 
|                                               | Canceled  |        |         |                 |  |        |       |                 |  |        |         | (3,150           | ) |   |       | 20.94 |  |   |         | (1,700 | ) |   |       | 20.94 | 
|                                               |           |        |         |                  |  |        |       |                  |  |        |         |                  |   |   |       |       |  |   |         |        |   |   |       |      
|Outstanding at end of year                     |           |        | 116,750 |                  |  | $      | 20.47 |                  |  |        | 222,100 |                  |   | $ | 22.51 |       |  |   | 298,300 |        |   | $ | 21.88 |      
|                                               |           |        |         |                  |  |        |       |                  |  |        |         |                  |   |   |       |       |  |   |         |        |   |   |       |      
|Exercisable at end of year                     |           |        |        |                  |  | $      | 0.00  |                  |  |        | 37,853  |                  |   | $ | 20.46 |       |  |   | 110,756 |        |   | $ | 21.82 |      
|Weighted average fair value of options granted |           | $      | 3.76    |                  |  |        |       |                  |  | $      | 4.13    |                  |   |   |       |       |  | $ | 3.40    |        |   |   |       |      

|                           |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 
|-------------------------- |  | ------------------- | ------- | ------------------- |  | ---------------- | --- | ----------- |  | ---------------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                           |  |                     |         |                    
|                           |  | Options Outstanding |         | Options Exercisable
|                           |  |                     |         |                    
|                           |  | Number              |         | Weighted Average    |  | Weighted Average |     | Number      |  | Weighted Average
|                           |  | Outstanding         |         | Remaining           |  | Exercise Price   |     | Exercisable |  | Exercise Price  
|Exercise Price Range       |  | at 12/31/03         |         | Contractual Life    |  | Per Share        |     | at 12/31/03 |  | Per Share       
|                           |  |                     |         |                     |  |                  |     |             |  |                 
|$19.52 to $20.05 per share |  |                     | 139,400 |                     |  |                  | 8.3 |             |  | $                | 20.05 |  |  |  | 40,832  |  |  | $ | 20.05 | 
|$20.90 to $24.68 per share |  |                     | 158,900 |                     |  |                  | 7.8 |             |  |                  | 23.48 |  |  |  | 69,924  |  |  |   | 22.86 | 
|                           |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 
|                           |  |                     | 298,300 |                     |  |                  | 8.0 |             |  | $                | 21.88 |  |  |  | 110,756 |  |  | $ | 21.82 | 
|                           |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 

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, 2003 or March 31, 2004, whichever
is lower. The number of shares of common stock purchased through
the Stock Purchase Plan for 2001, 2002 and 2003 were 15,823,
12,706 and 16,353, respectively.

(10) Subsequent Event

On January 22, 2004, the Company purchased a
building in Houston, Texas to replace its existing dental
laboratory. The purchase price of the property was approximately
$2,000,000. The Company financed the purchase using existing
working capital and its current credit facility.

F-20



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##### Table of Contents






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, 2001 |            | $ | 274,014    |  |            | $ | 105,763   |  |            | $ | 72,310  |  |  |  |  |  |  | $ | 307,467 | 
|                                 | December 31, 2002 |            |   | 307,467    |  |            |   | 46,477    |  |            |   | 46,978  |  |  |  |  |  |  |   | 306,966 | 
|                                 | December 31, 2003 |            |   | 306,966    |  |            |   | 157,811   |  |            |   | 152,097 |  |  |  |  |  |  |   | 312,680 | 



---



##### Table of Contents






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 12, 2004

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 12, 2004                    
|
| | /s/ JACK R. CROSBY                
| |                                   
| | Jack R. Crosby,                   
| | Director                          
| | March 12, 2004                    
|
| | /s/ DANIEL A. GRADY               
| |                                   
| | Daniel A. Grady,                  
| | Director                          
| | March 12, 2004                    
|
| | /s/ NORMAN F. STRATE              
| |                                   
| | Norman F. Strate,                 
| | Director                          
| | March 12, 2004                    
|
| | /s/ DAVID L. BROWN                
| |                                   
| | David L. Brown,                   
| | President, CEO, And Director      
| | (Principal Executive Officer)     
| | March 12, 2004                    
|
| | /s/ RICHARD F. BECKER, JR.        
| |                                   
| | Richard F. Becker, Jr,            
| | Vice President, Treasurer and     
| | Chief Financial Officer           
| | (Principal Financial Officer)     
| | March 12, 2004                    



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##### Table of Contents



EXHIBIT INDEX

|            |        |                                                                                                                                                                                                                    |                                                                                                                           
|----------- | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |        | Description of Exhibit                                                                                                                                                                                            
|            |        |                                                                                                                                                                                                                   
|            | 3.1(5) |                                                                                                                                                                                                                    | Restated Articles of Organization of the Company,
    filed with Massachusetts Secretary of State on October 14,
    1993.
|            | 3.2(5) |                                                                                                                                                                                                                    | By-Laws of the Company, as amended on
    December 31, 1982 and May 26, 1992.                                             
|10.1(1)*    |        | 2001 Stock Plan, as amended on April 10,
    2001.                                                                                                                                                                
|10.2(2)*    |        | 2001 Amended and Restated Loan Agreement with
    Citizens Bank, dated December 31, 2001.                                                                                                                        
|10.3(3)*    |        | Change of Control Severance Agreement between the
    Company and David L. Brown, dated January 23, 2001.                                                                                                         
|10.4(3)*    |        | 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.
|10.5(4)*    |        | Employment Agreement between the Company and
    Donald E. Merz, dated November 1, 1983.                                                                                                                          
|10.6(4)*    |        | Employment Agreement between the Company and Eloy
    V. Sepulveda, dated June 15, 1983.                                                                                                                          
|10.7*      |        | 1992 Long-Term Incentive Plan, as amended.                                                                                                                                                                        
|10.8*      |        | Employment Agreement between the Company and
    Richard F. Becker, Jr., dated April 1, 1995.                                                                                                                     
|10.9*      |        | Change of Control Severance Agreement between the
    Company and Richard F. Becker, Jr., dated April 1,
    1995.                                                                                                
|10.10*     |        | Employment Agreement between the Company and
    David L. Brown, dated April 1, 1995.                                                                                                                             
|10.11(5)*   |        | Salary Continuation Agreement, dated
    April 1, 1985, between the Company and William M. Mullahy.                                                                                                               
|10.12(5)*   |        | Salary Continuation Agreement, dated
    April 1, 1985, between the Company and Donald E. Merz.                                                                                                                   
|10.13(5)*   |        | National Dentex Corporation Laboratory Incentive
    Compensation Plan.                                                                                                                                           
|10.14(5)*   |        | National Dentex Corporation Corporate Executives
    Incentive Compensation Plan.                                                                                                                                 
|10.15(5)*   |        | National Dentex Corporation Group Managers
    Incentive Compensation Plan.                                                                                                                                       
|10.16*     |        | National Dentex Corporation Dollars Plus Plan, as
    amended on January 3, 1986.                                                                                                                                 
|10.17(5)*   |        | National Dentex Corporation Employees Stock
    Purchase Plan.                                                                                                                                                   
|21          |        | Subsidiaries of the Company                                                                                                                                                                                       
|23          |        | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                            
|31.1        |        | Certification pursuant to Rule 13a-14(a) and
    15d-14(a) of the Securities Exchange Act as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act (Chief Executive
    Officer).                         
|31.2        |        | Certification pursuant to Rule 13a-14(a) and
    15d-14(a) of the Securities Exchange Act as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act (Chief Financial
    Officer).                         
|32.1        |        | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act (Chief Executive Officer).                                                                 
|32.2        |        | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act (Chief Financial Officer).                                                                 

Unless otherwise noted, all exhibits are filed
herewith.



---



|    |                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference from the Registration
    Statement on Form S-8 (File No. 333-66446) as filed
    with the Commission on August 1, 2001.                       
|   
|(2) | Incorporated by reference from the Form 10-K
    for the fiscal year ended December 31, 2001 (File
    No. 000-23092) as filed with the Commission on
    March 8, 2002. 
|   
|(3) | Incorporated by reference from the Form 10-K
    for the fiscal year ended December 31, 2000 (File
    No. 000-23092) as filed with the Commission on
    March 13, 2001.



---



##### Table of Contents





|    |                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Incorporated by reference from the Form 10-K
    for the fiscal year ended December 31, 1999 (File
    No. 000-23092) as filed with the Commission on
    March 3, 2000.                
|   
|(5) | Incorporated by reference from the Registration
    Statement on Form S-1 (File No. 33-70440) declared
    effective by the Securities and Exchange Commission on
    December 21, 1993.



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



| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | These exhibits are re-filed herewith in
    accordance with Item 10(d) of Regulations S-K, having been
    previously filed with the Form 10-K for the fiscal year
    ended December 31, 1995.