<PAGE>   1

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended: SEPTEMBER 30, 1996


             [  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d)
                         OF THE SECURITIES EXCHANGE ACT OF 1934

                         Commission File No.:   0-19293

                      BIO-DENTAL TECHNOLOGIES CORPORATION
      ------------------------------------------------------------------
       (Exact name of small business issuer as specified in its charter)


        California                                           84-1104386         
--------------------------------                     -------------------------
(State or other jurisdiction of                       (I.R.S. Employer ID No.)
incorporation or organization)                

                  11291 Sunrise Park, Rancho Cordova, CA  95742      
                  --------------------------------------------- 
                    (Address of principal executive offices)

                                 (916) 638-8020                 
                  ---------------------------------------------
                  (Issuer's telephone number, incl area code)

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

         Check whether the issuer (l) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes   X     No
                                    -------     -------

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

         Number of shares outstanding of issuer's common stock: 6,444,986 shares
as of October 31, 1996.

         Number of shares outstanding of issuer's preferred stock:  None as of
October 31, 1996.

-------------------------------------------------------------------------------


        This Form 10-Q, including exhibits, consists of __________pages.
                    Exhibit Index appears on page__________.
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PART I  - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

     The following financial statements are attached hereto:

     - Consolidated balance sheets as of September 30, 1996 and March 31, 1996
     - Consolidated statements of operations for the three  months ended 
       September 30, 1996 and 1995
     - Consolidated statements of operations for the six  months ended 
       September 30, 1996 and 1995
     - Consolidated statements of cash flows for the six months ended September
       30, 1996 and 1995.

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

Results of Operations - Quarter Ended September 30, 1996

         For the quarter ended September 30, 1996, the Company produced net
         revenues of $6,953,196, a 21 percent decrease as compared with net
         revenues of $8,805,718 during the same period last year.  This decline
         in product sales is due to the Company's restructuring of its
         Integrated Dental Technologies, Inc. ("IDT") subsidiary and certain
         discontinued product lines associated with the restructuring. In
         December 1995, the Company announced that it was going to cease the
         sale of its filmless x-ray and computer hardware product lines, in
         order to focus on its core technology products - dental practice
         management software systems and intra-oral cameras - where the Company
         believed it could enjoy a strong competitive advantage.  As a result of
         this restructuring, revenues within IDT are expected be lower in fiscal
         1997 than they were in fiscal 1996. In addition, royalty revenues for
         the quarter were eliminated, following the early buy-out of the
         Company's License Agreement and associated assets with Denticator
         International, Inc. ("DII") in July 1996. Royalty revenues totaled
         $349,015 for the quarter ended September 30, 1995.

         The Company's cost of products sold increased from 68.5 percent of
         product sales  for the quarter ended September 30, 1995 to 72.6
         percent of product sales for the quarter ended September 30, 1996.
         This increase in the cost of goods sold percentage is a result of
         lower sales of the Company's proprietary technology products sold
         through its IDT subsidiary, which generally have higher gross margins
         than the products sold through The Supply House ("TSH") subsidiary.
         These higher margin products were a larger percentage of the product
         sales for the same quarter a year ago.  Royalty revenues have no
         associated cost of goods sold.





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         Selling, general and administrative expenses for the quarter ended
         September 30, 1996 were $2,714,029, down 17 percent from $3,265,049
         during the same period last year.  Included in selling, general and
         administrative expenses for the quarter ended September 30, 1996 are
         $176,000 of costs associated with the Company's pending merger with
         Zila, Inc.  Excluding these non-recurring merger- related expenses,
         selling, general and administrative expenses for the quarter ended
         September 30, 1996 would have been $2,538,029, or 37 percent of
         product sales, down 22 percent from $3,265,049, or 39 percent of
         product sales, during the same period last year.

         Depreciation and amortization for the quarter totaled $106,135, down
         from $128,133 during the same quarter last year, as several leasehold
         improvements and computer components were fully depreciated prior to
         the quarter ended September 30, 1996.

         Total operating costs for the quarter totaled $7,863,051, down from
         $9,188,735 during the same quarter last year.  Decreased product
         sales, and corresponding cost of goods sold, was the primary reason
         for the reduction in operating expenses.  However, selling, general
         and administrative expenses were also lower in IDT  as a result of
         IDT's more focused marketing approach.

         Interest expense increased to $205,261 during the quarter ended
         September 30, 1996, up from $66,141 for the same period last year. This
         increase came primarily as a result of the write off of unamortized
         note discounts and related issuance costs associated with the Term
         Notes issued by the Company April 1, 1996 (see Debt Financing in Part I
         of this document). For the quarter ended September 30, 1996, these
         costs included in interest expense totaled approximately $176,000.
         Interest and other income for the quarter was $43,560 as compared to
         $29,608 during the same period last year. This increased interest
         income was earned by the Company after July 22, 1996, when the Company
         received a total of approximately $7.5 million in cash in connection
         with the early buy-out of its Licensing Agreement and certain licensed
         assets with DII. This lump-sum payment allowed the Company to retire
         all of its outstanding long-term debt and provided additional cash
         which the Company invested in interest bearing instruments.

         Also, in the quarter ended September 30, 1996, the Company accrued a
         contingent loss liability of $545,000 which the Company estimated it
         would incur in the event that the outcome of the Wildwood litigation
         is unfavorable to the Company (see Legal Proceedings in Part II of
         this document).

         Operating income was $6,533,547, compared to an operating loss of
         ($383,017) during the same quarter last year.  The primary reason for
         the increased performance was due to the lump-sum royalty payment
         received during the quarter.  The non-recurring merger expenses noted
         above had a negative effect on operating income.

         Net income before taxes was $5,826,846, up from a loss of ($419,550)
         during the quarter ended September 30, 1995.  Included in these results
         is the $7.4 million gain realized in relation to the early buy-out of
         the Company's License Agreement and associated assets with DII.  Net
         income after taxes was $3,201,646, or $0.47 per share, compared to a
         loss of ($419,773) or ($0.07) per share last year.





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Results of Operations - Six months ended September 30, 1996 

         For the six months ended September 30, 1996 the Company had total
         revenues of $15,399,597 down 11 percent from $17,255,361 for the same
         quarter in 1995.  This decline in revenues comes primarily as a
         result of lower royalty revenues as well as lower sales within the
         Company's IDT subsidiary.  This decline in IDT sales came largely as a
         result of the restructuring of the operations in the fourth quarter of
         fiscal 1996 whereby management discontinued certain product lines and
         began  focusing on products management believes have the greatest
         market potential.  These core products are specifically the Company's
         proprietary dental practice management software system and intra-oral
         camera system.

         The Company believes that these products represent the greatest market
         opportunity for IDT for a number of reasons.  Among these are: 1)
         these markets are believed to be the most developed markets in the
         dental technology field at this time, 2) the Company believes that
         IDT's products are well positioned to compete in these markets, and 3)
         these products offer higher gross margins and lower service costs
         compared to the discontinued product lines which IDT no longer
         markets.

         Cost of products sold during the six months ended September 30, 1996
         were $10,698,146, down 8 percent from $11,675,347 during the same
         period last year.  The reduction in cost of products sold is due
         primarily to the 9 percent decline in product sales this year.  Cost
         of products sold represented 71 percent of product sales for the six
         months ended September 1996, virtually unchanged from the same period
         last year.

         Selling, general and administrative expenses for the six month ended
         September 30, 1996 totaled $5,210,080, or 35 percent of product sales,
         down from $6,192,526, or 38 percent of product sales, during the same
         period last year.  The reductions in selling, general, and
         administrative expenses came as a result of the restructuring of IDT
         and the more focused marketing program resulting therefrom.  It was
         also affected by the lower product sales for the six months ended
         September 30, 1996, as compared to the same period a year ago.
         However, certain  non-recurring expenses incurred in the six months
         ended September 30, 1996  relating to: 1) the buy-out of the Company's
         Licensing Agreement with DII, and 2) the Company's pending merger with
         Zila, Inc. have caused selling, general and administrative expenses to
         be higher than usual.

         Depreciation and amortization costs decreased  from $220,348 for the
         first six months last year to $210,631 this year, as certain assets
         were fully depreciated prior to the end of the six months ended
         September 30, 1996.

         Total operating costs for the six months ended September 30, 1996 were
         $16,118,857, or 107 percent of product sales and 105 percent of total
         revenues, down from $18,088,221, or 110 percent of product sales and
         105 percent of total revenues for the same period last year.  Again,
         the primary reason for this reduction in expenses results from lower
         product sales from the Company's IDT subsidiary.  Selling, general and
         administrative expenses in IDT





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         were also lower this year.

         Operating income for the first six months ended September 30, 1996 was
         $6,724,142, compared to a loss of ($832,860) for the same period last
         year.

         During the period, the Company recorded a $7,443,402 gain on the sale
         of future royalty and certain licensed assets.  This gain resulted from
         a transaction whereby the Company's licensee, DII, was purchased by
         Young Innovations, Inc., of Earth city, MO ("Young").  As a part of the
         acquisition, Young paid the Company approximately $7.5 million, an 
         amount equal to the present value of all future royalties which the
         Company estimates to be equal to the approximate present value of all
         future paymants which the Company would have been entitled to receive
         from DII under the terms of the License Agreement.

         Interest expense for the six months ended September 30, 1996 increased
         to $356,193, up from $135,407 last year.  On April 1, 1996, the Company
         borrowed $1.25 million by issuing Term Notes to provide working
         capital. Amortization of issuance costs and note discounts (associated
         with warrants issued to Lenders totaled $235,000, and are included in
         interest expense). These costs represent the majority of the increase 
         in interest expense for the period.

         Net income after taxes for the six months ended September 30, 1996 was
         $3,231,058, or $0.47 per share, compared to  a net loss of ($899,214),
         or ($0.14) per share for the same period last year.  The increase in
         profitability is due primarily to the early buy out of the DII License
         Agreement, although both IDT and The Supply House also produced
         improved operating results this year.

Liquidity and Capital Resources

         As of September 30, 1996, the Company held total assets of
         $12,058,824. Of these, $9,863,405 (81.8%) consisted of cash, accounts
         receivable, inventories, other current assets and deferred taxes.  As
         of this same date, the Company had total liabilities of $4,819,258,
         all being current liabilities.  The Company's current ratio was 2.05
         at September 30, 1996, compared to 1.20 at March 31, 1996.  The debt
         to equity ratio was .67 at September 30, 1996,  compared to 1.87 at
         March 31, 1996.

         Cash and cash equivalents were $2,423,481 at September 30, 1996,
         compared to $612,911 at March 31, 1996.  The increase in cash and cash
         equivalents resulted primarily from proceeds received from the early
         buy-out of the Denticator Licensing agreement and associated assets on
         July 22, 1996.  Accounts receivable decreased from $1,973,943 at
         March 31, 1996 to $1,787,663 at September 30, 1996.  This decline
         results primarily from a reduction of IDT sales and from increased
         utilization of credit cards by customers as a payment method, which has
         helped to reduce accounts receivable.

         Other receivables increased from $425,896 at March 31, 1996 to
         $560,597  at September 30, 1996.  This increase resulted from
         reclassification of certain asset accounts.  Effective July 22, 1996,
         the closing date for the Denticator transaction, accrued royalties,
         note payable and accrued interest owed to the Company by Denticator
         were converted to a "product credit"





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         upon which the Company and its affiliates can draw free product from
         Young Innovations, Inc. ("Young") and its affiliates.  Young purchased
         the Company's rights to receive future royalty payments from
         Denticator as part of a transaction in which Young purchased
         substantially all of the assets and assumed certain liabilities of
         Denticator.  The product credit can be used at a specified rate until
         depleted, estimated at approximately 18 to 24 months.  The majority of
         other receivables relates to the product credit, which totaled
         $554,149 as of September 30, 1996.  The product credit was recorded
         net of a present value discount.  An imputed interest rate was used 
         to determine the unamortized discount on the product credit and is
         classified as part of other receivables, both current and non current.

         Inventory increased from $3,667,161 at March 31, 1996 to $4,179,206 at
         September 30, 1996.  The increase in inventory during the six months
         ended September 30, 1996 was necessary to maintain the Company's
         historically high order fulfillment rate to TSH customers.  Inventory
         levels had  declined during the fourth quarter ended March 31, 1996
         due to certain inventory write downs associated with the IDT
         restructuring and the Company's low working capital position.

         Deferred taxes decreased from $1,614,500 at March 31, 1996 to $698,165
         at September 30, 1996.  This decrease resulted from the utilization of
         the deferred tax assets in lieu of cash payments for income taxes
         payable.

         Other assets increased from $44,616 at March 31, 1996 to $413,359 at
         September 30, 1996 which includes the non-current portion of the
         product credit, as described earlier. The portion of the product credit
         totaled $249,540 as of September 30, 1996, net of the unamortized
         discount.  Additionally, a certificate of deposit account, which
         totaled $101,593 at September 30, 1996, is classified as an other
         asset.

         Accounts payable and accrued expenses decreased from $4,851,628 at
         March 31, 1996 to $4,060,340 at September 30, 1996.  This decrease
         resulted from payments made to vendors in order to maintain a more
         current payable status with the Company's suppliers.

         Deferred revenues were $209,055 at September 30, 1996,  compared to
         $204,669 at March 31, 1996.  Deferred revenues represent customer
         support fees for software support, prepaid seminar fees from customers
         and customer deposits or pre-payments on sales orders not yet
         delivered or completed.

         Income taxes payable were $549,863 at September 30, 1996,  compared to
         $0.00 at March 31, 1996.  This increase results directly from the net
         income for the six months ended September 30, 1996.

         At September 30, 1996, total borrowings from the Bank of California and
         the Term Notes from two institutional lenders ("Lenders") had been
         repaid.  During the six months ended September 30, 1996, the Company
         increased its total borrowings as a result of funding from the issuance
         of the Term Notes representing a total principal amount of $1,250,000.
         The Term Notes were funded on April 1, 1996.  These funds were
         necessary to continue the product





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         development for a restructured IDT and to meet operating requirements.
         The Company received a cash payment of approximately $7.5 million on
         July 22, 1996 as a result of its disposition of its rights to receive
         royalty payments from Denticator and associated assets.  A portion of
         these proceeds were used to repay the entire outstanding principal and
         all accrued and unpaid interest on the Bank of California borrowings
         and the Term Notes.

         Capital contributed in excess of par increased $177,493 during the six
         months ended September 30, 1996.   The increase results from recording
         the note discount of $135,000 on the Term Notes,  common stock issued
         to the lecturing dentists pursuant to the Oral Vision agreement and a
         contribution to the Company's Employee Stock Ownership Plan.  As
         discussed more fully in "Debt Financing", the note discount represents
         the approximate value of the warrants which were issued in conjunction
         with the Term Notes.

         No other material capital expenditures have been committed to during
         the six months ended September 30, 1996 which have not either been
         paid for or otherwise disclosed herein.

Debt Financing

         In August 1994 the Company obtained an increase in its line of credit
         from the Bank of California.  In addition to the line of credit, a
         $1 million term loan with the Bank was secured in March 1995.

         Since the Company's eligible inventory and accounts receivable had
         never been sufficient to take full advantage of the $3 million credit
         line, the maximum borrowing base on the line of credit was reduced to
         $2.5 million as of October 31, 1995, an amount more consistent with
         the Company's eligible asset base.

         The Company's debt agreements with the Bank contained various
         covenants regarding working capital, net worth and total indebtedness,
         among other items, which became effective January 1, 1996 and
         thereafter.  At March 31, 1996 and prior to the repayment of the
         indebtedness on July 22, 1996, the Company was not in compliance with
         the covenant regarding the maintenance of current assets in an amount
         not less than $2,500,000 in excess of current liabilities.  The
         Company's failure to comply with these covenants constituted technical
         defaults under its credit arrangements and the Bank could have
         theoretically exercised certain creditor rights with the Company.  As
         described earlier and below, all of the Bank debt was repaid on July
         22, 1996.

         As noted earlier, on April 1, 1996, the Company secured additional
         funding pursuant to an agreement to borrow $1,250,000 from two
         institutional investors (the "Lenders").  The Term Notes, which
         evidenced the borrowing, accrued interest at the rate of 12% per annum
         and accrued interest was due and payable on September 30, 1996 and
         March 29, 1997.

         As additional consideration for the Term Notes, the Company issued to
         the Lenders warrants to purchase 250,000 shares of the Company's
         common stock at an exercise price of $3.03 and issued to International
         Capital Partners, Inc. warrants to purchase an additional 50,000 shares
         of common stock at an exercise price of $3.03 as part payment of a loan





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         placement fee.  Under the terms of the agreement, the Company was
         required to repay the outstanding principal of  the Term Notes and
         accrued and unpaid interest before July 31, 1996,  in order to avoid
         the issuance of additional warrants, but in no event was the repayment
         to occur later than March 29, 1997.   The Term Notes were repaid in
         full on July 22, 1996.  The value of the warrants was recorded as a
         note discount and the note discount was being amortized as additional
         interest expense over the life of the loan.  Additionally, issuance
         costs related to the Term Notes were being amortized over the life of
         the loan.  On June 7, 1996, the Company filed a current report on Form
         8-K (which is incorporated herein by this reference) describing the
         details of these subordinated loans.

         The Company used its line of credit for working capital to finance it
         operations, specifically in information systems and in IDT.  The term
         loan with the bank was used primarily to fund the retirement of
         existing debt associated with the acquisition of Ryker.  The balance
         outstanding on the line of credit as of  March 31, 1996 was $1,394,000
         and the balance on the term loan  as of  March 31, 1996 was  $715,459.
         Because the subordinated Term Notes were not funded until April 1,
         1996, there was no balance on these notes outstanding as of March 31,
         1996.

         On July 22, 1996, the Company transferred and conveyed to Denticator
         International, Inc. all of its future royalty rights and interests in
         patents, trademarks, trade names and other assets related to the
         Denticator International, Inc. operation for a lump sum payment of
         approximately $7.5 million.  Approximately $1.3 million of  the
         proceeds received as a  result of this transaction were used to prepay
         all the outstanding principal and accrued and unpaid interest on the
         Term Notes owed by the Company to the Lenders.  Approximately $2
         million of the proceeds were used to prepay all of the outstanding
         principal and accrued and unpaid interest on the line of credit and
         the term loan  owed by the Company to The Bank of California.

Effect of Inflation and Price Increases on the Company's Operation

         The Supply House estimates that price increases for products it sells
         will average approximately 4 percent in fiscal 1997.  The Supply House
         believes that new pricing strategies adopted during the first quarter
         of fiscal 1997 will address these anticipated cost increases and
         should enable The Supply House to prevent a decrease in gross margins
         for its non-managed care sales.  Managed care sales are expected to
         provide slightly lower gross margins but the sales volume increased
         from these contracts should improve the net income of The Supply
         House.

         The current rate of inflation is not believed to have any material
         effect on the operations of the Company's IDT subsidiary.

Proposed Mergers, Acquisitions or Divestitures

         Denticator International, Inc. On May 10, 1996, the Company signed a
         letter of intent with Young Innovations, Inc. ("Young") which
         contemplated that Young would buy out the Company's rights to receive
         royalties through March 1999 from Denticator International,





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         Inc. ("DII") and associated assets, for a lump sum cash payment of
         approximately $7.5 million.  DII, a former subsidiary of Bio-Dental,
         was sold in 1991, and since that time Bio-Dental has been receiving
         royalties from DII. The Company estimated that the $7.5 million payment
         approximated the net present value of the Company's projected future
         royalties, including a scheduled lump-sum payment that would have been
         due in April 1999.

         On July 22, 1996, the Company transferred and conveyed to Denticator
         all of its future royalty rights and interests in patents, trademarks,
         trade names and other assets related to the Denticator operation for a
         lump sum payment of approximately $7.5 million.  At the same time, 
         Young purchased substantially all of the assets and assumed certain
         liabilities of DII. Additionally, approximately $955,000 owed to the
         Company by Denticator at the time of closing for accrued royalties,
         notes payable and accrued interest was converted to a product credit
         upon which the Company and its affiliates can draw free product from
         Young and its affiliates at a specified rate until depleted, estimated
         at approximately 18 to 24 months.  This product credit was recorded net
         of a discount using an imputed interest rate.

         Zila, Inc.  On August 8, 1996, the Company signed a Merger Agreement
         with Zila, Inc.  ("Zila").  The execution of the Merger Agreement was
         pursuant to a letter of intent the Company signed on May 31, 1996 to
         merge the Company into Zila.  The transaction will involve the
         exchange of Zila stock for all of the Company's outstanding stock.
         Zila's acquisition of the Company is subject to a number of
         conditions, including the ability to account for the transaction as a
         pooling-of-interests, and the approval of the Company's shareholders.
         A Form S-4 Registration Statement (including Zila's prospectus and the
         Company's proxy statement) relating to the transaction was filed on
         August 13, 1996  with the Securities and Exchange Commission.

         The terms of the Merger Agreement call for Zila to exchange between
         0.75 and 0.825 shares of its stock for each of the Company's
         approximately 6.4 million outstanding shares, with the actual rate to
         be based upon the average closing bid prices of Zila's stock during
         the ten (10)- day "calculation period" ending on the trading day that
         is five trading days prior to the closing date of the merger. In no
         event, however, will Zila issue less than $4.95 worth of its stock for
         each share of the Company's stock, as determined during the
         "calculation" period.

         If Zila's stock averages between $6 and $7.75 during the calculation
         period, then the exchange rate will be 0.825:1.  If Zila's stock
         averages over $8.52, then the exchange rate shall be 0.75:1.  If
         Zila's stock averages between $7.75 and $8.25 during the calculation
         period, then Zila will issue that fractional number of shares
         necessary to provide each Company share with $6.39 worth of Zila
         stock.  If Zila's stock averages below $6.00 during the calculation
         period, then Zila shall issue that number of shares necessary to
         provide $4.95 per share of value for each Company share .  The table
         below illustrates the above information:


1. ZILA SHARE PRICE       $5.00  $6.00 $7.00   $7.75 $8.00   $8.25  $8.52
$9.00 $10.00 $11.00 $12.00

2. # SHARES ZILA FOR BDTC 0.99   0.825  0.825  0.825  .8     0.77   0.75   0.75
0.75   0.75   0.75

3. BDTC SHAREHOLDER GETS $4.95   $4.95  $5.78  $6.39 $6.39 $6.39   $6.39  6.75
$7.50  $8.25  $9.00





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Note
1.  If Zila share price during valuation period averages these amounts.
2.  BDTC shareholders receive these # shares of Zila for each BDTC share owned.
3.  Equates to this dollar value for each BDTC share exchanged.

         Zila, headquartered in Phoenix, Arizona, markets a rapidly growing
         line of non-prescription oral health care products, and is introducing
         what the Company believes to be the first oral cancer diagnostic,
         OraTest(TM).  FDA approval to market OraTest in the U.S.  is pending.

         OraTest is a patented, inexpensive, highly accurate diagnostic adjunct
         presently used in Canada, England and Australia to examine patients at
         high risk of oral cancer -- those 40 and over who use tobacco or drink
         heavily.  According to Zila, clinical studies have shown OraTest to be
         highly sensitive for detecting squamous cell carcinoma.  It is also
         used to delineate sites for biopsy and surgery, and is believed to be
         an effective smoking cessation counseling tool.

         The Company will become the exclusive distributor of OraTest in the
         U.S. when regulatory approval is granted.  As the exclusive
         distributor of OraTest, the Company anticipates that it  will have the
         opportunity to  expand its market share by cross-selling other dental
         supplies to new OraTest customers.

         Oral cancer is reportedly the eighth most common form of cancer in the
         U.S. and Europe, with approximately 30,000 new cases diagnosed each
         year, accounting for approximately 8,000 deaths.

         OraTest is a simple solution that the patient gargles with, causing
         any cancerous lesions to be stained  an almost-florescent blue color
         so they can be easily identified.

         It is currently contemplated that management for both companies will
         remain in place, and the Company does not believe that any material
         personnel changes will occur as a result of this merger.  Zila will
         continue to run their existing operations out of Phoenix and the
         Company will continue to run its operations out of its existing
         facilities.

         It is anticipated that the merger will be consummated during the third
         quarter of the current fiscal year, subject to  approval of the
         proposed merger by the Company's shareholders and certain other
         conditions.

Forward Looking Statements

         The material set forth in this Form 10-Q and its accompanying exhibits
         includes forward-looking statements and references to anticipated
         future events and developments that are based on management's beliefs
         and expectations.  There is no assurance that such statements and
         references will prove to be correct.  Such statements and references
         are set forth herein in reliance upon numerous assumptions that may or
         may not prove to be accurate or correct.  The major assumptions upon
         which these forward-looking statements and references are based
         include the following: (1) the consummation of the merger transaction
         between the





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         Company and Zila; (2) the successful restructuring of the operations
         of the Company's IDT operating subsidiary and the redirection of IDT's
         marketing focus away from hardware-based comprehensive computer
         solutions and towards the sale of practice management software systems
         and intra-oral cameras; (3) the growing market demand for IDT's
         technology products;  (4) the improvements of operating margins on
         products sold by the Company's dental products distribution unit, The
         Supply House; (5) the growth in sales and market share of The Supply
         House; (6) the success of The Supply House in obtaining additional
         contracts with managed dental care insurance companies and in
         increasing its sales as a result of such contracts; (7) the obtaining
         of FDA approval of Zila, Inc.'s oral cancer diagnostic product,
         OraTest; (8) the successful realization of the anticipated market
         benefits of combining the market appeal of the OraTest product with the
         strength of the Company's existing product distribution network; (9)
         the adequacy of available debt and equity capital to fund inventories,
         receivables, product introduction and marketing; (10) the Company's
         ability to settle the Wildwood litigation (discussed below) on terms
         favorable to the Company; and (11) the retention of key management
         personnel following consummation of the Company's merger with Zila.

PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

         As reported earlier in the Company's Form 10-QSB for the quarter ended
         September 30, 1995, dated November 13, 1995, the Company's Form 10-QSB
         for the quarter ended December 31, 1995, dated  February 13, 1996, the
         Company's 10-KSB for the year ended March 31, 1996, dated June 28,
         1996, and the Company's 10-Q for the quarter ended June 30, 1996, dated
         August 14, 1996, the Company was served with a lawsuit (the "Wildwood
         litigation") which was filed on July 6, 1995, in the California
         Superior Court, County of Sacramento, against the Company, its
         transfer agent, OTR, Inc., and Mr. G. Michael Montross, a shareholder
         of the Company (Wildwood Limited Partnership Oversight Committee, et
         al, v. Bio-Dental Technologies Corporation, et al; Sacramento Superior
         Court No. 95A503733).

         The Wildwood litigation alleges that in 1992, G. Michael Montross
         pledged 200,000 shares of the Company's common stock owned by Mr.
         Montross to an agent for the plaintiffs, to secure debts allegedly
         owing by Mr. Montross to the plaintiffs.  The lawsuit further alleges
         that Mr. Montross subsequently executed a fraudulent affidavit of loss
         claiming that the certificates for the 200,000 shares had been lost or
         destroyed.  Mr. Montross thereby achieved a reissuance of such shares
         through the Company's transfer agent, OTR, Inc.  The plaintiffs allege
         that Mr. Montross subsequently defaulted on his debts to the
         plaintiffs and that plaintiffs foreclosed on the Company's shares that
         their agent held as security for Mr. Montross' debts.  The Wildwood
         litigation seeks the recovery of general and special damages from the
         defendants, or in the alternative, that the 200,000 shares in dispute
         be reissued in their names.  Plaintiffs claim that they have lost
         security for more than $320,000 in debts owed by Mr. Montross, and
         have suffered damages in the amount of the highest fair market value
         that the 200,000 shares have obtained since October 16, 1992,
         estimated by the





                                       11
<PAGE>   12
         plaintiffs at $1,250,000.

         The Company has referred this matter to outside counsel with the
         directions that counsel vigorously defend against the claims set forth
         in the Wildwood litigation.  The Company has filed an Answer, which
         denies all of the material allegations of the Wildwood litigation and
         asserts various affirmative defenses.  The Company and OTR have
         tendered the defense of this lawsuit to each other.  Both tenders have
         been denied.

         The Company has also filed a Cross-Complaint for Indemnity,
         Negligence, Fraudulent Misrepresentation, Conversion, Imposition of a
         Constructive Trust and Conspiracy against Mr. Montross, OTR, Inc. and
         the Plaintiffs.  Specifically, the Company alleges that its transfer
         agent, OTR, was negligent for not securing a surety bond from Mr.
         Montross at the time Mr. Montross filed an affidavit of loss claiming
         the certificates for the 200,000 shares had been lost or destroyed.
         OTR has filed a Cross-Complaint against Mr. Montross and the Company
         for Implied Indemnity, Contractual Indemnity, Negligence, Fraudulent
         Misrepresentation, Conversion and Imposition of Constructive Trust.
         The Company has filed an Answer which denies all of the material
         allegations of the Cross-Complaint.

         The Company has tendered the defense of this lawsuit to its insurance
         carriers.  The insurance carriers have denied coverage by claiming
         that one or more policy exclusions apply.  While the Company disagrees
         with the insurance carriers' position, it does not appear likely that
         the insurance carriers will become involved voluntarily in this
         litigation.

         The Wildwood litigation was referred by the Court to non-binding
         arbitration.  After a brief hearing, the court-appointed arbitrator on
         June 6, 1996 rendered a decision unfavorable to the Company.  In his
         ruling, the arbitrator found that the Company was liable to the
         plaintiffs for either 200,000 shares of the Company's stock or
         $1,250,000.  The Company filed a request for a Trial De Novo.  This
         request was granted, effectively vacating the arbitration award.

         The Company has filed a Motion for Summary Judgement seeking to have
         the Complaint dismissed.  OTR has also filed a Motion for Summary
         Judgement seeking dismissal of the Complaint as to it and also seeking
         a judgment on its indemnity claim against the Company.  These motions
         are set for hearing on November 14, 1996.

         This matter has now been set for trial on December 4, 1996.  A
         mandatory settlement conference has been set for November 13, 1996.

         Because of the inherent uncertainties of litigation and the fact that
         discovery has not been completed, the Company is not able to predict
         whether the outcome of this litigation will be favorable or
         unfavorable.  However, the Company has accrued a contingent loss
         liability including legal costs of $545,000 during the quarter ended
         September 30, 1996.  This amount is the Company's best estimate of the
         loss in the event that the outcome of the litigation is unfavorable to
         the Company.





                                       12
<PAGE>   13
         On April 5, 1996, an action was filed whereby Ryker Dental of
         Kentucky, Inc. d.b.a. The Supply House, and Curtis Rocca, along with
         Dr.  Woody Oakes, Dr. Travis McFee, and Excellence in Dentistry, Inc.,
         were alleged to have written and/or published libelous statements
         about a dental management consulting group, the "Practice Builder".
         This allegedly libelous letter was written by Mr. Rocca as a "Letter
         to the Editor" to the dental newsletter published by Doctors Oakes and
         McFee.

         This letter was written in response to the Practice Builder's
         introduction of a multi-level marketing program designed to sell
         dental supplies to dentists.  Under this program, the Practice Builder
         made certain claims about how much money a dentist would save on his
         supplies, along with how much money he could make through downstream
         "commissions".

         Mr. Rocca and the Company continue to believe that the statements made
         in Mr. Rocca's letter are true, and the Company plans to defend this
         action vigorously.  In addition, the Company has been notified that,
         subject to a reservation of rights, the defense of this action will be
         covered under the Company's general liability insurance policy.


ITEM 2. CHANGES IN SECURITIES.

                 None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

                 None

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

                 None

ITEM 5. OTHER INFORMATION

                 None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         The following document is attached to this Form 10-Q as an exhibit:

27.2     Financial Data Schedule

         a)      All other required exhibits are incorporated by reference into
                 this Item 6  by reference to Item 13 of the Company's Form 10-
                 KSB for the year ended March 31, 1996, filed by the Registrant
                 on June 28, 1996; to Item 7 of the Company's current report on
                 Form 8-K filed June 7, 1996; and to Item 7 of the Company's
                 current report on Form 8-K filed August 6, 1996.





                                       13
<PAGE>   14
         b)      A Current Report on Form 8-K describing the Notes and Warrants
                 Purchase Agreement between Registrant and The State of Oregon
                 ZCG/PERS and the City of Stamford Fireman's Pension Fund, was
                 filed June 7, 1996.

                 A Current Report on Form 8-K describing the Asset Purchase
                 Agreement  by and among Registrant, Denticator International,
                 Inc., Jose L. Mendoza and Young Innovations, Inc., and the
                 Assignment and Release Agreement by and among Registrant,
                 Denticator International, Inc., and Young Innovations, Inc.,
                 was filed August 6, 1996.





                                       14
<PAGE>   15
                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.




                                       Bio-Dental Technologies Corporation
                                                   (Registrant)




Date:                                  /s/ Terry E. Bane
                                       --------------------------------------
                                       Terry E. Bane,
                                       Chief Financial Officer
                                       (principal financial officer and
                                        principal accounting officer)





                                       15
<PAGE>   16

              BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                          September 30, 1996     March 31, 1996
                                                            (Unaudited)            (Audited)
                                                          ------------------     --------------
<S>                                                           <C>                 <C>
ASSETS
Current assets
   Cash and cash equivalents                                   $2,423,481            $612,911
   Accounts receivable, net                                     1,787,663           1,973,943
   Other receivables                                              560,597             425,896
   Merchandise inventories                                      4,179,206           3,667,161
   Prepaid expenses and other current assets                      214,293             272,197
   Current maturities of assets transferred under
         contractual arrangements                                       0              60,000
   Deferred income taxes                                          698,165           1,614,500
                                                              -----------         -----------
          Total current assets                                  9,863,405           8,626,608

Property and equipment, net                                       617,776             717,152

Other assets
   Assets of business transferred under
        contractual arrangements                                        0             380,354
   Intangible assets, net                                       1,164,284           1,227,862
   Other assets                                                   413,359              44,616
                                                              -----------         -----------
         Total other assets                                     1,577,643           1,652,832
                                                              -----------         -----------
TOTAL ASSETS                                                  $12,058,824         $10,996,592
                                                              ===========         ===========



LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
   Accounts payable and accrued liabilities                    $4,060,340          $4,851,628
   Notes payable                                                        0           2,109,459
   Deferred revenue                                               209,055             204,669
   Income taxes payable                                           549,863                   0
                                                              -----------         -----------
          Total current liabilities                             4,819,258           7,165,756

Committments and contingencies                                   --                   --
                                                              -----------         -----------
TOTAL LIABILITIES                                               4,819,258           7,165,756

Stockholders' equity
   Preferred stock, $.01 par value; authorized 1,000,000
        shares: none issued and outstanding                      --                   --
   Common stock, $.01 par value; authorized 50,000,000
        shares; 6,444,986  issued and outstanding                  64,450              64,271
   Capital contributed in excess of par value                   3,889,472           3,711,979
   Retained earnings                                            3,285,644              54,586
                                                              -----------         -----------
   Total stockholders' equity                                   7,239,566           3,830,836
                                                              -----------         -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                      $12,058,824         $10,996,592
                                                              ===========         ===========
</TABLE>


See notes to consolidated financial statements.

<PAGE>   17
              BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (Unaudited)




<TABLE>
<CAPTION>
                                                                           Three Months Ended
                                                                    ----------------------------------
                                                                    September 30,        September 30,
                                                                         1996                1995
                                                                    -------------        -------------
<S>                                                                   <C>                 <C>
Revenue from product sales                                            $6,953,196          $8,456,703
Royalty revenue                                                                0             349,015
                                                                      ----------          ---------- 
     Net revenues                                                      6,953,196           8,805,718

Operating costs and expenses:
     Cost of products sold                                             5,042,887           5,795,553
     Selling, general and administrative                               2,714,029           3,265,049
     Depreciation and amortization                                       106,135             128,133
                                                                      ----------          ---------- 
                                                                       7,863,501           9,188,735

Gain on sale of license agreement                                      7,443,402                   0
                                                                      ----------          ---------- 
Operating income (loss)                                                6,533,547            (383,017)

Legal and settlement expense                                            (545,000)                  0
Interest and other income                                                 43,560              29,608
Interest expense                                                        (205,261)            (66,141)
                                                                      ----------          ---------- 
Earnings (loss) before provision for income taxes                      5,832,526            (419,550)

Provision for income taxes                                             2,625,200                 223
                                                                      ----------          ---------- 
Net earnings (loss)                                                   $3,201,646           ($419,773)
                                                                      ==========          ========== 
Retained earnings, beginning of period                                    83,998           1,841,122
                                                                      ----------          ---------- 
Retained earnings, end of period                                      $3,285,644          $1,421,349
                                                                      ==========          ========== 
Earnings (loss) per common share and common share equivalents              $0.47              ($0.07)
                                                                      ==========          ========== 
Weighted average common shares and common share
    equivalents outstanding                                            6,872,500           6,406,800
                                                                      ==========          ========== 
</TABLE>


See notes to consolidated financial statements.

<PAGE>   18
              BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (Unaudited)




<TABLE>
<CAPTION>
                                                                            Six Months Ended
                                                                    ----------------------------------
                                                                    September 30,        September 30,
                                                                         1996                1995
                                                                    -------------        -------------
<S>                                                                  <C>                 <C>
Revenue from product sales                                           $15,020,754         $16,466,171
Royalty revenue                                                          378,843             789,190
                                                                     -----------         -----------
     Net revenues                                                     15,399,597          17,255,361

Operating costs and expenses:
     Cost of products sold                                            10,698,146          11,675,347
     Selling, general and administrative                               5,210,080           6,192,526
     Depreciation and amortization                                       210,631             220,348
                                                                     -----------         -----------
                                                                      16,118,857          18,088,221

Gain on sale of license agreement                                      7,443,402                   0
                                                                     -----------         -----------
Operating income (loss)                                                6,724,142            (832,860)

Legal and settlement expense                                            (575,000)                  0
Interest and other income                                                 72,109              69,276
Interest expense                                                        (356,193)           (135,407)
                                                                     -----------         -----------
Earnings (loss) before provision for income taxes                      5,870,738            (898,991)


Provision for income taxes                                             2,634,000                 223
                                                                     -----------         -----------
Net earnings (loss)                                                   $3,231,058           ($899,214)
                                                                     ===========         ===========
Retained earnings, beginning of period                                    54,586           2,320,563
                                                                     -----------         -----------
Retained earnings, end of period                                      $3,285,644          $1,421,539
                                                                     ===========         ===========
Earnings (loss) per common share and common share equivalents              $0.47              ($0.14)
                                                                     ===========         ===========
Weighted average common shares and common share
    equivalents outstanding                                            6,858,800           6,430,600
                                                                     ===========         ===========
</TABLE>


See notes to consolidated financial statements.

<PAGE>   19
                      Bio-Dental Technologies Corporation
                            Statement of Cash Flows
                         Six Months Ended September 30,
                                  (Unaudited)



<TABLE>
<CAPTION>
                                                                                         1996                 1995
                                                                                      ----------            --------
<S>                                                                                   <C>                  <C>
Cash Flow from operating activities:
  Net earnings (loss)                                                                 $3,231,058           ($899,214)
  Adjustments to reconcile net earnings
  (loss) to net cash (used in) provided by
  operating activities:
        Depreciation & amortization                                                      210,631             220,348
        ESOP contribution in stock                                                        23,177              18,200
        Services paid in stock                                                            19,494                   0
        Amortization of note discount and related issuance costs                         243,200                   0
        Gain on sale of licensing agreement                                           (7,443,402)                  0
        Changes in operating assets & liabilities:
         (Increase) decrease in:
           Accounts receivable                                                           186,280             (63,382)
           Other receivables                                                             126,895            (101,423)
           Inventories                                                                  (564,243)            189,556
           Prepaid expenses and other current assets                                      57,904              56,524
           Income taxes receivable                                                                           400,400
           Deferred income taxes                                                         916,335                   0
           Other assets                                                                 (368,743)             11,665
          Increase (decrease) in:
           Accounts payable and accrued expenses                                        (791,287)           (267,294)
           Deferred revenue                                                                4,386              24,155
           Income taxes payable                                                          549,863                   0
                                                                                      ----------            --------
        Net cash provided (used) in operating activities                              (3,606,653)           (410,465)
                                                                                      ----------            --------
Cash flows from investing activities:
  Additions to office furniture, equipment and leaseholds                                (22,405)            (77,365)
  Proceeds from sale of licensing agreement                                            7,549,087                   0
  Collection of note receivable                                                                0              60,239
                                                                                      ----------            --------
        Net cash provided (used) in investing activities                               7,526,682             (17,126)
                                                                                      ----------            --------
Cash flows from financing activities:
  Net draws on bank note payable                                                               0             554,554
  Net proceeds from notes payable                                                      1,150,000                   0

  Payments on notes payable and leases payable                                        (3,259,459)           (211,216)
                                                                                      ----------            --------
        Net cash provided (used) by financing activities                              (2,109,459)            343,338
                                                                                      ----------            --------
Net increase (decrease) in cash                                                        1,810,570             (84,253)

Cash and cash equivalents at March 31                                                    612,911             322,848
                                                                                      ----------            --------
Cash and cash equivalents at September 30                                             $2,423,481            $238,595
                                                                                      ==========            ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
        1. During the six months ended September 30, 1996, the Company transferred
             approximately $52,000 of inventory to property and equipment.
        2. Cash paid during the period for:
             Interest                                                                   $115,468            $120,895
             Income taxes                                                             $1,166,400                $223
</TABLE>

See notes to consolidated financial statements.
<PAGE>   20
              BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


1.       CONSOLIDATED FINANCIAL STATEMENTS

         The consolidated balance sheet as of September 30, 1996 and March 31,
         1996 (audited), the  consolidated statements of operations  for the
         three month and six month periods ended September 30, 1996 and 1995
         and the consolidated statements of cash flows for the six months ended
         September 30, 1996 and 1995, have been prepared by the Company without
         audit.  In the opinion of management, all adjustments (which include
         only normal recurring adjustments) necessary to present fairly the
         financial position, results of operations and cash flows at September
         30, 1996 and for all periods presented, have been made.

         Certain information and footnote disclosures normally included in
         financial statements prepared in accordance with generally accepted
         accounting principles have been condensed or omitted.  It is suggested
         that these consolidated financial statements be read in conjunction
         with the financial statements and notes thereto included in the
         Company's March 31, 1996 Form 10-KSB.  The results of operations for
         the periods ended September 30, 1996 and 1995 are not necessarily
         indicative of the operating results for the full year.

2.       ORGANIZATION AND NATURE OF BUSINESS

         Bio-Dental Technologies Corporation (The Company) was incorporated
         April 5, 1988.  The Company is a dental products marketing
         organization which sells professional dental products through the
         operations of two wholly-owned subsidiaries.  Ryker Dental of
         Kentucky, Inc. markets consumable dental merchandise and supplies via
         telemarketing and catalog sales under the trade name "The Supply
         House".  The Company's other subsidiary, Integrated Dental
         Technologies, Inc., markets high-technology dental products such as
         intra-oral cameras and practice software to dentists.

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of consolidation

         The consolidated financial statements include the accounts of the
         Company and its wholly owned subsidiaries, Ryker Dental of Kentucky,
         Inc. (Ryker) and Integrated Dental Technologies, Inc. ("IDT").  All
         significant intercompany balances and transactions have been
         eliminated.

         Cash and cash equivalents

         For purposes of the statements of cash flows, the Company considers
         all highly liquid debt instruments purchased with a maturity of three
         months or less to be cash equivalents.



<PAGE>   21
         Inventories

         All Company inventories are valued at the lower of cost or market.
         Prior to April 1, 1994, Ryker Dental determined cost using the
         first-in, first-out (FIFO) method for certain inventory and moving
         average for other items.  The moving average method approximates the
         FIFO method.  Necessitated by the installation of new computer
         software for operations and accounting, Ryker Dental changed its
         method of determining cost for all inventory items to the moving
         average method.  There was no cumulative effect adjustment as a result
         of the change to moving average.  Integrated Dental Technologies
         utilizes the moving average method to determine cost.

         Property and equipment

         Property and equipment are stated at cost.  Depreciation is computed
         using the straight line method over the estimated useful lives of the
         assets ranging from 3 to 10 years.  Leasehold improvements are
         amortized over the lease term or the estimated useful life, whichever
         is shorter.

         Intangible assets

         Intangible assets consist of goodwill, software rights, organization
         costs, and covenants not to compete.  All intangible assets are
         amortized on a straight line basis.  Organizational costs and goodwill
         are being amortized over 20-40 years and covenants are amortized over
         the term of the agreement.  Software rights are being amortized on a
         straight line basis over five years.

         Income taxes

         The Company utilizes an asset and liability approach in accounting for
         income taxes.  This approach requires the recognition of the deferred
         tax liabilities and assets for the expected future tax consequences of
         temporary differences between the financial statement carrying amounts
         and tax basis of assets and liabilities.  Deferred tax assets and
         liabilities are reflected at currently enacted income tax rates
         applicable to the period in which the deferred tax assets or
         liabilities are expected to be realized or settled.  As changes in tax
         laws or rates are enacted, deferred tax assets and liabilities are
         adjusted through the provision for income taxes.

         Stockholders' equity

         Earnings per share are based upon the weighted average number of
         common and common equivalent shares outstanding.  Common stock
         equivalents consist of stock options and warrants.




<PAGE>   22
Reclassifications

         Certain reclassifications were made to the 1995 consolidated financial
         statements in order to be in conformity with the 1996 presentation.

 4.      ACCOUNTS RECEIVABLE

         Accounts receivable consist of the following at September 30 and March
31, 1996:

<TABLE>
<CAPTION>
                                                                  September 30, 1996        March 31, 1996 
                                                                  ------------------        --------------
         <S>                                                          <C>                     <C>
         Trade receivables                                            $ 1,986,259             $ 2,112,487
           Less: allowance for doubtful accounts                         (198,586)               (138,544)
                                                                      -----------             -----------

                 Accounts receivable, net                             $ 1,787,663             $ 1,973,943
                                                                      ===========             ===========
</TABLE>

         Financial instruments which potentially subject the Company to credit
         risk consist principally of trade receivables.  The Company provides
         credit, in the normal course of business, to customers.  The Company
         performs ongoing credit evaluations of its customers and maintains an
         allowance for potential credit losses.

5.       PROPERTY AND EQUIPMENT

         Property and equipment consist of the following at September 30 and
March 31, 1996:

<TABLE>
<CAPTION>
                                                                      September 30, 1996    March 31, 1996
                                                                      ------------------    --------------
         <S>                                                               <C>                <C>
         Office furniture and equipment                                    $1,463,380         $1,398,161

         Molds and dies                                                        19,500            590,000

         Leasehold improvements                                                93,492             90,145

         Production and warehouse equipment                                    92,376             89,336
                                                                           ----------         ---------- 
                                                                            1,671,748          2,167,937

         Less:  accumulated depreciation                                   (1,053,972)        (1,451,390)
                                                                           ----------         ---------- 

         Property and equipment, net                                       $  617,776         $  717,152
                                                                           ==========         ==========
</TABLE>





<PAGE>   23
6.       INTANGIBLE ASSETS

         Intangible assets consist of the following at September 30 and March
31, 1996:

<TABLE>
<CAPTION>
                                                                    September 30, 1996      March  31, 1996
                                                                    ------------------      ---------------
           <S>                                                          <C>                    <C>
           Goodwill                                                     $  969,637             $  969,637
           Software rights                                                 287,985                287,985
           Organizational costs                                            113,626                113,626
           Covenants not to compete                                        120,000                120,000
                                                                        ----------             ----------
                                                                         1,491,248              1,491,248

           Less: accumulated amortization                                 (326,964)              (263,386)
                                                                        ----------             ----------

                  Intangible assets, net                                $1,164,284             $1,227,862
                                                                        ==========             ==========
</TABLE>

7.       BANK AND OTHER NOTES

         At March 31, 1996, the Company had available a line of credit and a
         term note with a bank.  The line of credit and the note were
         collateralized by inventory, accounts receivable and equipment of the
         Company. The Company also executed Term Notes with two institutional
         investors ("Lenders") on April 1, 1996 for a total principal amount of
         $1.15 million.  The Term Notes were subordinated.

         The line of credit was to expire and the note with the bank was due on
         September 30, 1996. The Term Notes were due March 29, 1997.  The line
         of credit and note with the bank and the Term Notes including accrued
         and unpaid interest were repaid on July 22, 1996. The outstanding
         principal amounts are shown below at September 30, 1996 and March 31,
         1996:


<TABLE>
<CAPTION>
                                                                          September 30, 1996        March 31, 1996
                                                                          ------------------        --------------
           <S>                                                                <C>                     <C>
           Line of credit with bank, variable rate of interest                $            0          $1,394,000
                 at prime plus 2.5 percent

           Note due bank, variable rate of interest                                        0             715,459
                 at prime plus 2.5 percent
 
           Notes due Lenders, rate of interest at 12%       $1,250,000                     0                   0
                                                                              --------------          ----------

                                                                              $            0          $2,109,459
                                                                              ==============          ==========
</TABLE>
<PAGE>   24
         As part of the Notes due lenders, the Company issued warrants to the
         Lenders to purchase 250,000 shares of the Company's common stock at an
         exercise price of $3.03 per share.  The Company also paid
         International Capital Partners, Inc.  a placement fee of $100,000 and
         issued warrants to purchase 50,000 shares of the Company's common
         stock at an exercise price of $3.03 per share.  The warrants expire on
         the earlier of March 29, 2001 or the closing of a consolidation or
         merger of the Company with or into another corporation or a sale of
         all or substantially all of the assets of the Company under certain
         circumstances.  Mr. Douglas L.  Ayer, who serves on the Company's
         Board of Directors, is the President of International Capital
         Partners, Inc.

   8.  STOCKHOLDERS' EQUITY

         During the six months ended September 30, 1996 the Company issued
         7,619 shares of restricted common stock as a contribution to the
         Employee Stock Ownership Plan for the year ended March 31, 1996.
         Additionally, the Company issued 5,852 shares of restricted common
         stock to four lecturing dentists as compensation for their services on
         behalf of IDT.  An additional 4,381 shares of restricted common stock
         were issued pursuant to the exercise of certain stock options.

         As a result of issuance of the Term Notes pursuant to the agreement to
         borrow $1,250,000 which occurred on April 1, 1996, the Company
         recorded a note discount and increased  Capital Paid in Excess of Par
         equal to the value of the detachable warrants issued in conjunction
         with the Term Notes.  The value of the warrants was determined using
         the "Black Scholes" option pricing model.  The note discount is being
         amortized over the life of the Term Notes.

9.  ASSETS OF BUSINESS TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS
    (OTHER RECEIVABLES)

         In March 1991, the Company incorporated a wholly owned subsidiary,
         Denticator International, Inc. (DII) and transferred the Company's
         manufacturing operations into DII in exchange for the issuance of a
         note receivable to the Company with monthly principal payments of
         $10,005 plus interest at 150% of the Company's cost of funds from
         April 1, 1994 through March 31, 1999.  Principal payments on the note
         receivable were deferred by the Company from October 1, 1995 through
         September 30, 1996, but interest payments continue each month.
         Interest only payments were made from March 1991 through March 31,
         1994.  Effective with the date of incorporation, the Company entered
         into a licensing agreement with DII for the manufacture and sale of
         certain dental products owned by the Company.  Under this agreement,
         DII  pays the Company a minimum monthly royalty equal to the greater
         of $43,000 or 17% of net sales of DII.  In addition, the agreement
         provides for further royalties to be paid to the Company if DII
         achieves certain levels of profitability.

         On March 31, 1991, the Company sold all of the outstanding capital 
         stock of DII to DII's





<PAGE>   25
         former operations manager.  The sales agreement incorporated the
         licensing agreement described above.

         Effective April 1, 1994, the licensing agreement was amended.  The
         terms included herein reflect the material impact of such amendments.
         On July 22, 1996, the Company disposed of its rights to receive future
         royalty payments from DII.  The Company received approximately $7.5
         million in lieu of future royalties  the Company was entitled to
         receive in connection with its Licensing Agreement with DII and
         consideration to purchase certain licensed assets of the Company.  In
         addition, monies owing to the Company from DII at the time of the
         closing were converted to a "product credit" upon which The Supply
         House and other Company affiliates can draw free product at a specified
         rate until depleted. This total product credit  approximated $876,000,
         net of the unamortized discount, on the closing date.  As part of the
         transaction, Young Innovations, Inc.  acquired substantially all of the
         assets and certain liabilities of DII.

10.      MERGER OF RYKER DENTAL OF KENTUCKY.

         On January 3, 1994 (but effective after the close of business on
         December 31, 1993), the Company acquired all of the outstanding
         capital stock of Ryker Dental of Kentucky, Inc. ("Ryker"), pursuant to
         the merger ("Merger") of the Company's wholly-owned subsidiary, San
         Diego Dental Supply, Inc. ("SDDS"), with and into Ryker with Ryker
         being the surviving entity.  Pursuant to the Merger, the Company
         issued an aggregate of 220,000 shares of its previously unissued
         restricted Common Stock to the shareholders of Ryker in cancellation
         of the shares of Ryker Common Stock owned by such shareholders.  The
         Company became the sole shareholder of Ryker through the conversion of
         each outstanding share of Common Stock of SDDS into one share of
         Common Stock of Ryker.  As part of the transaction, the Company
         retired approximately $720,000 of Ryker's debt, thereby releasing the
         former shareholders of Ryker from their personal guarantees on such
         debt.  The Articles of Merger were filed with the Secretary of State
         of Kentucky on January 3, 1994.

         The transaction was accounted for as a purchase.  The purchase price
         was allocated to the fair value of Ryker's assets and liabilities and
         the excess of $388,186 was allocated to goodwill.  The goodwill is
         being amortized on the straight line method over a period of twenty
         years, in accordance with the Company's accounting policies.  The
         depreciable assets acquired will be depreciated over the remaining
         useful life on a straight line basis, in accordance with the Company's
         accounting policies.

11.      ACQUISITION OF ORAL-VISION ASSETS AND LIABILITIES.

         On July 6, 1994, the Company signed an agreement and purchased the
         assets and certain liabilities of Oral Vision, Inc., a manufacturer of
         an intra-oral camera product.  Prior to the acquisition, the Company
         has managed the business operations of Oral Vision, Inc., pursuant to
         a management agreement.  The acquisition was effective as of January
         1, 1994, as the Company effectively maintained control of the
         operations, assets and liabilities of Oral Vision, Inc. as of that
         date.  In connection with this purchase, the Company issued 272,727





<PAGE>   26
         shares of its previously unissued restricted common stock to the sole
         shareholder of Oral Vision, Inc., Dr. William Oakes.  The assets
         acquired consist mainly of trade inventory and accounts receivable.
         As part of the transaction, on July 6, 1994, the Company retired
         approximately $515,000 of the assumed liabilities, thereby releasing
         certain security interests held by a vendor of Oral Vision, Inc.

         The transaction was accounted for as a purchase.  The purchase price
         was allocated to the fair value of Oral Vision's assets and
         liabilities and the excess of $215,919 was allocated to goodwill.  The
         goodwill is being amortized on the straight line method over a period
         of twenty years, in accordance with the Company's accounting policies.
         The depreciable assets acquired will be depreciated over the remaining
         useful life on a straight line basis, in accordance with the Company's
         accounting policies.  The assets and liabilities are held in
         Integrated Dental Technologies, Inc. ("IDT"), a wholly-owned
         subsidiary of the Company formed for this purpose.

12.      ACQUISITION OF CROWN SYSTEMS ASSETS AND LIABILITIES.

         On November 14, 1994, the Company signed an agreement and purchased
         the assets and certain liabilities of Crown Systems, Inc.  ("Crown"),
         effective November 1, 1994.  Crown develops and markets dental
         practice management software systems and will continue to develop
         additional software for IDT.  In connection with this purchase, the
         Company issued 36,191 shares of its previously unissued restricted
         common stock to Crown.  The assets acquired consist mainly of accounts
         receivable and dental practice management software rights.  As part of
         the transaction, the Company retired approximately $205,000 of assumed
         liabilities.

         The transaction was accounted for as a purchase.  The software rights
         which were acquired will be amortized on the straight line method over
         a period of five years.  The depreciable assets acquired will be
         depreciated over the remaining useful life on a straight line basis,
         in accordance with the Company's accounting policies.  The assets and
         liabilities are held in Integrated Dental Technologies, Inc. ("IDT"),
         a wholly-owned subsidiary of the Company.  As part of the transaction,
         the principals of Crown entered into one year employment agreements
         and three year non-compete agreements with IDT.

         In October 1995, it was determined the original purchase price was
         understated by $33,933.  As a result of this determination, an
         additional 11,310 shares of previously unissued  restricted common
         stock were issued to Crown on October 24, 1995.   Adjustments to
         reflect the financial impact of this transaction were recorded in
         October 1995.

13.      MERGER WITH ZILA, INC.  (ZILA)

         On August 8, 1996, the Company signed a Merger Agreement with Zila,
         Inc.  The execution of the Merger Agreement was pursuant to a letter
         of intent the Company signed on May 31, 1996 to merge the Company with
         Zila, Inc.  The transaction will involve the exchange of Zila stock
         for all of the Company's outstanding stock.  Zila will exchange no
         less than 0.75
<PAGE>   27
         and no more than 0.825 shares of its common stock for each share of
         the Company's common stock, with the final rate to be based upon the
         price at which Zila's stock trades during the "calculation period"
         preceding the close of the transaction.  Zila's acquisition of the
         Company is subject to a number of conditions, including the ability to
         account for the transaction as a pooling-of-interests and the approval
         of the Company's shareholders.

14.      CONTINGENT LIABILITY

         In July, 1995, the Company was named as a defendant, along with the
         Company's transfer agent and a shareholder of the Company
         (Shareholder), in a lawsuit.  The lawsuit alleges that the Company
         wrongfully failed to register 200,000 Company shares in the name of
         the plaintiffs which were pledged as security by the Shareholder for a
         debt owed by the Shareholder to the plaintiffs.

         The Company denies all of the material allegations of the lawsuit
         against it and asserts various affirmative defenses.  The Company will
         vigorously defend against the claims set forth in the lawsuit.
         Because of the inherent uncertainties of litigation and the fact that
         discovery has not been completed, the Company is not able to predict
         whether the outcome of this litigation will be favorable or
         unfavorable.  Nonetheless, the Company accrued a liability of
         $525,000 in September 1996. This amount is the Company's best estimate
         of the loss in the event the outcome of the litigation is unfavorable
         to the Company.
<PAGE>   28

                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
                                                                                                      Sequential
Exhibit                                                                                               Page
Number                                     Exhibits                                                   Number
------                                     --------                                                   ------
<S>                       <C>
27.2                      Financial Data Schedule
</TABLE>