SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               -------------------
                                   Form 10-KSB

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended                               Commission file
number:
October 31, 1998                                            1-11032
------------------                                    ------------------


                     PROFESSIONAL DENTAL TECHNOLOGIES, INC.
                    --------------------------------------
            (Exact name of registrant as specified in its charter)


            NEVADA                                             71-0644350
-------------------------------                                ----------
(State or other jurisdiction of                              (IRS Employer
incorporation or organization)                           Identification Number)


633 LAWRENCE STREET, BATESVILLE, ARKANSAS                           72501
-----------------------------------------                         ----------
(Address of Principal Executive Offices)                          (Zip Code)

Registrant's telephone number, including area code:  (870) 698-2300

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

                          Common Stock, $0.01 par value
                        -----------------------------
                                (Title of class)

Securities registered pursuant to Section 12(g) of the Act:    NONE


      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 the subject
of such filing requirements for the past 90 days.   YES     X           NO

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

      The aggregate market value of the voting stock held by  non-affiliates  of
the registrant, based upon the closing price of the registrant's Common Stock as
reported on the American Stock Exchange on January 20, 1999, was $7.9 million.

      The registrant's revenue for fiscal 1998 was $27.5 million.

      As of  January  20,  1999,  the  latest  practicable  date for which  such
information is available, there were issued and outstanding 14,100,000 shares of
the Registrant's Common Stock.


DOCUMENTS INCORPORATED BY REFERENCE

      The following documents are incorporated by reference herein:

      None.



<PAGE>


                                     PART I

ITEM 1.  BUSINESS
-------  --------

                                     GENERAL

      Professional  Dental  Technologies,  Inc.  ("Pro-Dentec"  or "Company") is
principally  engaged in the business of designing,  manufacturing  and marketing
products  to dental  professionals  relating  to the  diagnosis,  treatment  and
prevention of periodontal and other dental diseases.  The Company uses extensive
educational  and other support  systems to help the dentist  practice to today's
standard  of care.  These  activities  are based upon  current  concepts  in the
diagnosis,  treatment  and  prevention of dental  diseases.  By promoting a team
approach,  which  integrates and  coordinates  the efforts of general  dentists,
periodontists and other dental specialists,  hygienists and patients themselves,
the Company has positioned  itself to take  advantage of an enlarging  market by
acting as a resource for change. The Company's products,  including  proprietary
software,  hardware  and  instruments,  are  designed to  facilitate  the dental
office's  shift toward an earlier  diagnosis  and treatment of  periodontal  and
other dental diseases.

      The Company was incorporated on July 12, 1900, under the laws of the State
of California  under the name of The Banner Mine  Development  Company  ("Banner
Mine").  From 1906 until 1986 Banner Mine was inactive and conducted no material
business  operations.  In December 1986, the authority of the Company to conduct
business was reinstated and the domicile of the Company was changed to the State
of  Nevada  through  the  merger  of the  Company  into a  newly  formed  Nevada
corporation.  Subsequently,  on  February  26,  1987,  the  Company  amended its
articles  of  incorporation  to,  among  other  things,  change  the name of the
corporation to its current name,  Professional Dental Technologies,  Inc. In May
1991, the Company's Registration Statement on Form 10 filed under the Securities
Exchange Act of 1934,  as amended,  became  effective,  and the Company  thereby
became a  "reporting  company"  subject  to the  periodic  reporting  and  other
requirements of the Act. The Company's shares of Common Stock were listed on the
American Stock Exchange Emerging Company Marketplace on March 18, 1992.

      The  Company's  executive  offices  are  located at 633  Lawrence  Street,
Batesville, Arkansas 72501. The telephone number is (870) 698-2300.

                                    PRODUCTS

                              ROTA-DENT(REGISTERED)

      The Company's principal product is the Rota-dent, a proprietary, patented,
rotary-action,  plaque  removal and teeth  cleaning  device  dispensed by dental
professionals  to patients for use at home between  dental  office  visits.  The
Rota-dent is a rechargeable,  power assisted instrument that is designed using a
water-resistant  power  handle  that  accepts  disposable  necks  with  uniquely
designed, patented brush tips. The product utilizes a cleaning action similar to
that of the rotary instruments used by dentists and hygienists to professionally
clean teeth in the dental  office.  Each  Rota-dent  instrument is supplied with
four  disposable   heads  so  that  different   persons  can   economically  and
hygienically use the same power handle.  Replacement heads are available through
dental offices and from the Company's Customer Service department by telephone.



                                                                               2
<PAGE>



      Each of the  patented  brush  tips is  comprised  of  approximately  4,600
filaments  made from a  combination  of three  and four mil  fibers  that,  when
compared to conventional  toothbrush bristles, are less abrasive to tooth enamel
and gingival tissue (gums). The tips are soft, safe and durable.  The small size
of the  filaments  and brush tips  enables  the user to reach areas of the mouth
that conventional toothbrushes generally cannot reach effectively.

      The  Rota-dent's  effectiveness  results from its ability to remove dental
plaque. Plaque is a thin filmy substance that continually forms in the mouth due
to bacterial activity and, if allowed to remain, hardens on teeth as calculus or
tartar.  Unless  removed  daily,  plaque  deposits  can cause  inflammation  and
gingivitis and can ultimately  lead to more severe  periodontal  disease,  now a
leading  cause of tooth  loss in the United  States.  Numerous  clinical  trials
conducted at major university dental schools have shown the Rota-dent product to
be more effective than manual  toothbrushing for removing plaque and controlling
gingivitis.  Two  one-year  clinical  trials  published  in a  leading  refereed
periodontal  research journal,  have shown that the Rota-dent is as effective in
removing  plaque,  controlling  gingivitis  and reducing the bacteria that cause
periodontal disease as using a combination of dental floss, an interspace brush,
toothpicks and a conventional toothbrush.

      The Rota-dent  instrument has been  engineered to be especially  effective
for  plaque   removal  from  the  area  at  or  just  below  the  gum  line  and
interproximally (between teeth), the most critical areas for cleaning to prevent
periodontal  disease.  Many  dentists and  hygienists  recommend  the use of the
Rota-dent instrument for applying anti-microbials and other medications to tooth
surfaces and gums.  A study at the Harvard  School of Dental  Medicine,  jointly
sponsored  with Procter and Gamble,  concluded  that the effect of their leading
anti-microbial,  Peridex(TRADEMARK), is significantlY enhanced when applied with
the Rota-dent.

      Traditionally,  a regimen of manual  toothbrushing  and  flossing has been
recommended  by  dentists  and  hygienists  as part of a sound  program for oral
hygiene.  Nevertheless,  it is  generally  accepted  that  90%  of  the  general
population do not floss on a regular basis because it is too time  consuming and
difficult.  The  Rota-dent  product is routinely  dispensed  to simplify  plaque
control for the general  population,  as well as for  orthodontic,  handicapped,
arthritic,  and geriatric  patients,  as well as those who have received  dental
implants.

      Prior to commercial introduction,  the Rota-dent product was test-marketed
to over five thousand  consumers and hundreds of dentists in the United  States.
Early clinical trials at the Ohio State  University  School of Dentistry  showed
that the  Rota-dent  could be most  beneficial  with a well  defined  period  of
clinical instruction. At the urging of many clinicians, the Company committed to
keep the  product  exclusively  in dental  offices,  as opposed to using  retail
channels  of  distribution,  to be  dispensed  from the  office,  as part of the
dentist's  armamentarium  against  dental  disease.  This provided an additional
service  for the dental  practice  to offer,  as well as an  incidental  revenue
source.

      The  Company  has  engineered  and owns  computer-driven,  automated,  and
patented brush machines, semi-automatic and automatic brush cutters, tooling for
manufacturing  high  precision  metal  parts,  injection  molding  machines  and
multi-cavity  injection molds for the product's  plastic parts, as well as other
manufacturing and assembly equipment.  All plastic parts used to manufacture the
Rota-dent,  with one exception,  are molded  in-house by the Company.  There are
alternate  sources of  supply  for all  components  and  materials  used in  the


                                                                               3
<PAGE>



manufacturing  process, and the  Company is not dependent upon a single supplier
for any component or type of material for this product.

      The marketplace  for home use oral hygiene devices is highly  competitive.
The  Company   competes  with  many  different   manufacturers   of  manual  and
electrically  powered tooth cleaning devices,  including  electric  toothbrushes
such as the  Interplak  (by  Conair),  the Braun Oral B (by  Gillette),  and the
Sonicare (by Optiva  Corporation).  These competitors are larger and use a wider
variety  of  distribution  methods  than  does  the  Company.  The  Company  has
successfully  competed with these companies on the basis of favorable  long-term
clinical studies, product design, product quality and responsive service to both
professionals  and consumers.  While most of the Company's  competitors  rely on
traditional   retail   distribution   methods,   the  Company  believes  that  a
professional  distribution system is more effective in the long-term.  Thus, the
Company  has  invested  in  clinical  trials and in efforts  to  demonstrate  to
dentists and hygienists the advantages of dispensing the Rota-dent  product from
their  dental  offices as part of their  plaque  control  programs and the other
professional  services they offer,  including implant  maintenance,  orthodontic
appliances, the maintenance of cosmetic restorations,  post-surgical maintenance
of  periodontal  cases and general  preventive  oral hygiene.  The Company holds
several design and utility patents relating to the Rota-dent, and has vigorously
enforced its patent rights and advantages against infringing  parties.  To date,
all patent  litigation has been resolved in the Company's favor. In fiscal 1998,
sales  of  the  Rota-dent  and   associated   accessory   products   represented
approximately 64.4% of the Company's total revenues for the period.

                    PRO-SELECT-3(TRADEMARK) ULTRASONIC SCALER

      During fiscal 1997, the Company introduced the Pro-Select-3 scaler system,
with  heated  irrigation.   Prior  to  that  time,  the  Company  sold  the  PDT
Sensor(TRADEMARK) Sc/RP Scaler. Both of these devices are ultrasonic instruments
useD by dentists and dental  hygienists for the therapeutic  removal of hardened
deposits from both the exposed and root surfaces of the tooth.

      The PDT Sensor Sc/RP was previously distributed by the Company pursuant to
the  terms of  joint  venture  and  license  agreements  between  the  Company's
wholly-owned  subsidiary,  PDT Production  Corporation ("PDT  Production"),  and
Lyco, Inc.  ("Lyco"),  an Arkansas Company.  The Company's  distribution  rights
covered North and South America.  The Company  entered into the joint venture to
manufacture,  market and distribute the scaler based on  representations  by its
partner that led the Company to believe that the scaler had a  competitive  edge
over  other  ultrasonic  scalers  in  the  U.S.  market.  Subsequently,  it  was
determined that the scaler had to be  substantially  redesigned.  Sales activity
was temporarily curtailed while the Company completed redesign efforts. Shipment
of the redesigned  product began in January,  1993.  Nevertheless,  for this and
other reasons,  the scaler did not achieve  satisfactory market acceptance,  and
the Company  experienced  declining sales throughout 1995 and 1996. On September
30, 1996, PDT Production  purchased its partner's interest in the joint venture.
On October 23, 1996, the assets of PDT Production  were assigned for the benefit
of  creditors.  At the  time  of  the  assignment,  the  only  creditors  of PDT
Production  were the Company and its former partner.  The assignment  terminated
the license  with the former  partner.  On April 24,  1997,  the Company and PDT
Production were served with a complaint by Lysta  Production A/S ("Lysta"),  the
parent of Lyco. The lawsuit was settled on February 7, 1998.  (See ITEM 3. LEGAL
PROCEEDINGS).



                                                                               4
<PAGE>



      Because of the lack of market  success with the PDT Sensor Sc/RP,  and the
demands of the market for additional features, the Company's product development
group was  commissioned  to design a new  scaler  from the  ground  up.  The new
product   commenced   shipment  in  February   1997.  The   Pro-Select-3   is  a
state-of-the-art scaler that combines computerized  piezo-ultrasonic  technology
with a closed,  multi-fluid,  heated irrigation system that effectively delivers
purified water, antimicrobials, disinfectants and desensitizing solutions to the
teeth and gums during and after scaling or root planing procedures.

      The Company  competes  with  several  other  companies  that  manufacture,
market, and sell  electronically  powered dental scaling equipment.  The Company
seeks to compete with other  manufacturers  based on direct  distribution to its
established network of dental practitioners, and through the product's increased
effectiveness  and comfort for both the patient and  clinician.  During the 1998
fiscal year, sales of scalers and scaler accessories accounted for approximately
18.9% of the Company's revenue.

                         DENTAL PHARMACEUTICAL PRODUCTS

      Pro-Dentec  manufactures  and  markets  a full line of  topically  applied
dental  fluoride  products,  including  rinses and gels.  The line  consists  of
products  applied  in the  office by dental  professionals  as well as  products
utilized  at home by patients  between  office  visits.  This  product  line was
introduced  to the market in 1993.  The dental  pharmaceutical  product line has
been expanded each year since being  introduced,  and the Company believes it is
now the  broadest-based  and most complete  fluoride  product line  available in
dentistry.

      The   effectiveness  of  fluoride  for  fighting  tooth  decay  is  widely
recognized. Fluoride is also extensively used by dental professionals to destroy
the  bacteria  associated  with  periodontal  disease,  as well as to reduce the
sensitivity  of exposed roots from soft tissue loss due to  periodontal  disease
and/or periodontal surgery.

      The Company currently  manufactures all its fluoride rinses and gels in an
FDA-approved facility in Batesville,  Arkansas.  The Company does not anticipate
significant  difficulties  in obtaining the materials  necessary to  manufacture
these  products.   The  Company  competes  with  several  other  companies  that
manufacture,  market, and distribute  fluoride products to dentists.  The market
for dental  pharmaceuticals  is fragmented,  with no one company  controlling or
dominating.  The Company competes in this market by selling directly through its
professional  representatives,  on the basis of quality, breadth of offering and
the price of its  products.  The ability to purchase  fluorides,  prophy  paste,
manual and powered  toothbrushes  and dental floss becomes a convenience for the
dental  office,  and to the extent the  Company  offers a complete  line of such
products,  reduces the number of suppliers with which each office must deal. The
Company believes this gives it a competitive  advantage.  During the 1998 fiscal
year, dental  pharmaceutical  products accounted for approximately  10.9% of the
Company's revenue.


                                                                               5
<PAGE>



                    VICTOR(REGISTERED) DENTAL OFFICE SOFTWARE

      Victor Dental Office is an integrated software suite, under which name the
Company  markets  three  software  packages--Victor  Chart,  a voice  activated,
periodontal  and restorative  charting  system;  Victor Manage,  a full-featured
dental  practice  management  system;  and Victor Image,  an image archiving and
cosmetic  imaging  system.  The programs may be purchased  individually,  in any
combination, or as a full suite.

      The Victor Chart voice activated charting software is used by dentists and
hygienists to assist them in the efficient recording, organization, maintenance,
retrieval and  comparison of diagnostic  and  restorative  data obtained  during
dental   examinations.   It  therefore  enables  dentists  to  communicate  more
effectively  with their  patients  and  insurance  carriers  and  reduces  their
exposure  to  malpractice   claims   resulting  from   incomplete  or  imprecise
record-keeping. The use of Victor Chart assists dentists in meeting the American
Dental  Association's  guidelines which recommend that a periodontal  evaluation
for every  patient be done at least  annually,  but  preferably  biannually,  to
reduce tooth loss and prevent or reduce malpractice claims.

      Victor   Chart  was  the  first  voice   operated   comprehensive   dental
examination, diagnosis and presentation aid introduced to the dental profession.
It is easily  networked  within the dental office to allow it to serve  multiple
examination  and  consultation  areas.  The  current  Windows  95 version of the
software includes highly sophisticated speech recognition  technology,  allowing
the practitioner to speak continuously, rather than having to pause between each
word spoken, as in the original version.  This permits faster, more complete and
more accurate data input. Using Victor Chart, dental professionals can perform a
complete  dental  examination  unassisted and hands free,  while  permitting the
clinician to maintain  sterility.  Also,  it frees up the time of a hygienist or
assistant  who would  otherwise  be required  to record  data.  The  periodontal
examination  process,  which generally consists of recording up to eight hundred
separate  items,  has  traditionally  been difficult for dentists  because it is
complicated and time-consuming. The easy-to-read computer screen and multi-color
charts  generated  by Victor Chart  reduce the time  involved by  assisting  the
dental professional in making a diagnosis, and presenting a record of the timing
and scope of the examination.

      The  failure to  diagnose,  adequately  treat or  appropriately  refer the
periodontal  patient is the  greatest  source of  malpractice  lawsuits  against
dentists.  The completed  charts  printed by Victor Chart can be used to provide
dental  specialists  and  third  parties,  such  as  insurance  companies,  with
accurate, detailed information. The system can store virtually unlimited numbers
of  reports  and  examinations  for future  reference,  periodic  updating,  and
comparative  analysis.  Victor Chart's  ability to compare  current data against
previous  examinations  is  crucial,  as it  automatically  and  clearly  alerts
clinicians and patients to worsening conditions as well as clinical improvement.
Through  graphic  illustration,   the  system  enables  the  patient  to  better
understand  the  diagnosis  and more  readily  accept  the  need for  treatment.
Furthermore,  the system facilitates increased  communication between the doctor
and patient regarding the nature of the diagnosis and the recommended  treatment
course, and enables both of them to better monitor the effects of treatment over
time.  Patient  motivation is heightened  through the easily understood  graphic
presentation of treatment results.

      Victor Manage software provides scheduling, treatment planning, management
reporting,  insurance  tracking and electronic  claims filing  capability to the
dental office. In 1993, the Company's wholly-owned  subsidiary,  PDT Byte, Inc.,
entered into  partnership  with  PerfectByte,  Inc.,  which had been marketing a
proprietary  computerized  management system called  PerfectByte(REGISTERED)  to
dental offices for several years.  The  partnership  subsequently  completed the
development of  a new  practice  management  program  which  utilizes  Microsoft


                                                                               6
<PAGE>



Windows  95  and  significantly  expands  the  functionality  of   the  original
PerfectByte program.

      Victor Manage is an efficient,  flexible management tool that provides the
ease of use,  organizational  structure and analytical  capability essential for
the success of today's dental practice.  Among the advanced features included in
the  system  are  "peel  and  stick"  appointments,   which  makes  changing  of
appointment  times and lengths  intuitive and fast.  "Speed  Notes"  permits the
insertion of routine notes in 15 available comment fields.  "In Touch" generates
routine patient  correspondence.  Insurance  tracking is automatic and complete,
and is combined with electronic  filing,  which speeds processing and payment of
claims,  improving  cash flow to the practice.  Victor Manage also includes more
than 95 reports and listings,  including highlight reporting of vital management
statistics.  Complementing  pre-formatted reports is a report generator that may
be used to create custom  reports and data  listings or to modify  pre-formatted
reports.

      The third element of Victor  Dental  Office,  Victor Image,  which was the
subject of litigation with the Company's  former partners in Pro-Dentec  Canada,
and  with a  third-party  programmer  retained  by the  former  partners,  which
litigation  was settled on February 9, 1998,  is no longer sold by the  Company.
(See ITEM 3. LEGAL PROCEEDINGS).

      The Company has  determined  that  distribution  of its software  products
through independent  resellers represents the most efficient and economic way of
marketing  Victor Dental  Office.  These Value Added  Resellers  (VARs)  install
hardware if the sale involves a turnkey system,  provide on-site training of the
customer in the proper system operation,  and other services as requested by the
customer.  The  Company  retains  responsibility  for  technical  support of the
software.  This support is typically  provided through annual technical  support
agreements with the customer,  which also provide for upgrades and  enhancements
to the software. VARs typically purchase and resell their own hardware. In those
instances where the Company  purchases the hardware portion of the system, it is
from well established vendors, normally Hewlett Packard; however, such equipment
is  available  from  numerous  computer  suppliers,  and  the  Company  has  not
experienced any difficulties in obtaining adequate supplies of any components or
materials.




                                                                               7
<PAGE>



                                 OTHER PRODUCTS

                               PERIODONTAL PROBES

      The  Perio-Probe(TRADEMARK)  and the patented PDT Sensor(TRADEMARK)  Probe
are  disposABLE  diagnostic  dental  instruments,  used in the dental  office to
examine  patients for  indicators of periodontal  disease.  The PDT Sensor Probe
differs  from the Perio Probe in that it has a sensing  mechanism  built into it
which allows the user to control the amount of pressure used during  periodontal
exams for more  accurate  results.  This is the first time dental  professionals
have had an instrument that can provide a pre-determined amount of force without
utilizing complicated and expensive electronic instruments.

      The probes are flexible  dental  instruments  designed to be used with the
Company's other  periodontal  exam products to provide easier,  less painful and
more accurate measurement of subgingival conditions.  The probes are designed to
be disposable,  but may be autoclaved  (sterilized) for multiple uses. The Perio
Probes and the PDT Sensor  Probes are molded for the  Company by a local  vendor
who uses  tooling  owned by the  Company.  The  probes  are  made  from  readily
available  materials.  Precision  markings  are  applied  by the  Company at its
manufacturing  facilities  in  Arkansas.  The  Company has not  experienced  any
difficulties in obtaining  materials for the probes, and does not anticipate any
such difficulty in the future.

                             ROTA-POINTS(TRADEMARK)

      The  Rota-point  is a flexible,  non-splintering  interdental  cleaner and
stimulator.  Rota-points  are used  interproximally  to remove  both  debris and
dental  plaque from the surfaces of teeth.  This area (between the teeth) is the
most difficult  area to clean  properly.  The mild surface  texture and physical
design of the  Rota-points  make them an ideal product to use with  Rota-dent to
help maintain a healthy mouth.  Wooden  toothpicks can damage gum tissue because
of their awkward shape and the possibility of breaking and splintering.

      Since  bleeding gums are not healthy,  patients can be instructed to watch
for signs of bleeding on the white  surface of the  Rota-point.  If this occurs,
the bleeding area may need more attention.  Rota-points are convenient,  require
less manual  dexterity than floss,  clean larger  interproximal  areas than many
interdental  type  cleaners,  and  effectively  massage and  stimulate the gums.
Rota-points, which are sold individually, are included in each Rota-dent kit.

                             PERIOCHECK(REGISTERED)

      The  Periocheck   Periodontal   Monitoring   System  provides  the  dental
professional with an accurate and economic  chairside test for use in monitoring
the outcome of  periodontal  therapy.  The test  measures the activity  level of
patient's neutral protease enzymes in gingival  crevicular fluid. This family of
enzymes, which include collagenase and elastase, accounts for most of the tissue
degradation  observed in periodontal  disease. Up to seven gingival sites may be
tested with a single patient test packet. The easy-to-read results are available
in minutes  during  the  patient's  office  visit  eliminating  any need to send
samples to an outside  laboratory for analysis.  Positive and negative  controls
are  included  with each test kit to  increase  confidence  that the results are
valid.



                                                                               8
<PAGE>



      Periocheck   is  the  first  test   approved  by  the  U.S.  Food  &  Drug
Administration   for  use  in  monitoring  the  periodontal   disease   process.
Eye-readable   test   results   are   intended   to  assist  in  the   treatment
decision-making  process by  indicating  whether a patient is  responding to the
selected therapy.

                                DEVELOPMENT COSTS

      The Company incurred $0.7 million of product  development  expense in 1998
as compared to $0.5 million in 1997. The increase was caused by a combination of
three major factors:  a  reclassification  of computer  programmers' wages which
were  previously  charged to an  unconsolidated  affiliate  of the  Company;  an
increase in the product development staff; and an increase in the use of outside
engineering  services.  The Company from time to time considers the  development
and  introduction,  whether  alone or with  others,  of other  professional  and
consumer  dental  products.  The Company  has applied  for,  and  currently  has
pending,  several additional  applications for patents on additional products or
product improvements. The Company cannot predict whether any additional products
will be  developed  or  introduced,  or  patents  issued,  as a result  of these
efforts.

                               SALES AND MARKETING

      The Company  believes that the market for dental  instruments and products
intended for home use for oral hygiene  maintenance is an expanding market. This
is partially  attributable  to a shift in focus by the general  dentist from the
treatment  of tooth  decay to placing  greater  emphasis on the  prevention  and
treatment of gingivitis  (early stages of  periodontal  disease).  The Company's
products  specifically  address  the  diagnosis,  treatment  and  prevention  of
periodontal  disease.  These  products are marketed  exclusively  through dental
offices.  In addition,  the underlying  market for dental  services is a growing
one. The United States Healthcare  Financing  Administration  estimates that the
aggregate  annual domestic market for dental  services was  approximately  $45.9
billion in 1995, and that this market has increased in size at a compound annual
growth  rate of 8.6% from 1980 to 1995.  This agency  projects  that size of the
dental services market will further increase to $79.1 billion by the year 2005.

      These  trends,  coupled  with the  increasing  awareness  of the impact of
periodontal disease among consumers and dental  professionals  alike, as well as
the wide and  varied  extent of the  disease  (which  industry  figures  suggest
affects  approximately 75% of the American adult population),  should lead to an
expanding   marketplace  for  the  Company's  products.   With  this  increasing
professional and consumer focus on "soft tissue" (gums) and periodontal disease,
the Company  believes  that it is in an  advantageous  position to supply dental
professionals  with the high quality and  effective  specialty  instruments  and
equipment necessary to provide more specialized services to patients.

      The Company  expects to continue  the  expansion  of its field sales force
through  1999.  The focus of this  expansion is to provide  greater  territorial
coverage,  which  management  believes is the most effective way to increase the
penetration  of the  Company's  products  in dental  offices  across the nation.
Customers in geographic  areas not covered by a field sales  representative  are
served by experienced  account  executives over the telephone.  No single dental
practice  accounted  for more than 1% of the Company's  total sales  revenues in
fiscal 1998.



                                                                               9
<PAGE>



      The Company  maintains a full-service  printing  facility and  audio-video
production  studio to design and produce a variety of  educational,  promotional
and marketing  materials about the Company's products for use by the dentist and
his  patients.  In  addition  to  printing  for its own needs,  the  Company has
historically provided printing services to its affiliate Life Plus (See Item 12.
Certain  Relationships  and  Related  Transactions).   Beginning  in  1996,  and
aggressively so since, the Company has also sought commercial  printing business
and now runs the printing company as a profit center.

                                  FOREIGN SALES

      The  Company  began  exporting  its  products  in 1991.  Sales to  foreign
distributors  represented  approximately  7.0% of the  Company's  total sales in
1998.  A  significant  part of this  total  represented  sales to the  Company's
Canadian sales  subsidiary,  Pro-Dentec  Canada.  Prior to May 1997,  Pro-Dentec
Canada  was a  50%-owned  partnership,  and  its  revenues  therefore  were  not
consolidated  with those of the Company.  As a result of  successful  litigation
with the former partner,  the Pro-Dentec Canada  partnership was rescinded,  and
commencing in May, 1997, Canadian sales revenues were consolidated. (See ITEM 3.
LEGAL PROCEEDINGS)  Canadian sales revenues for 1998 were $1.6 million.  Most of
the balance of foreign sales went to independent distributors in Western Europe.
Management  believes there is significant  potential for increased  sales in the
export marketplace,  and is searching for new distributors in countries in which
the Company's products are not currently sold.

                                   REGULATION

      Several of the dental products  manufactured  and marketed by the Company,
the Rota-dent product, the Pro-Select-3 ultrasonic scaler, fluoride products and
Periocheck are subject to regulation by the Food and Drug Administration ("FDA")
and, in some instances,  by foreign governments.  Under the 1976 Amendments (the
"1976  Amendments")  to the Federal Food, Drug and Cosmetic Act, as amended (the
"Act"),  and  the  regulations  promulgated  thereunder,  the  manufacturers  of
"devices,"  as such term is defined in Section  201(h) of the Act,  must  comply
with certain  controls that regulate the testing,  manufacturing,  packaging and
marketing of devices.  Under the Act, devices are subject to different levels of
approval requirements,  the most comprehensive of which requires that a clinical
evaluation program be conducted before a device receives  pre-market approval by
the FDA for  commercial  distribution.  The  Company's  products  are "Class II"
products  under this  classification  system and did not require  such  clinical
evaluation.  The Company has complied  with the FDA's  applicable  qualification
procedures  for all  such  products.  The  Rota-dent  also  bears  the CE  Mark,
permitting it to be sold within the European Union. The Company anticipates that
other products may be certified for the CE Mark in the future.

      As a manufacturer of products which are classified as medical devices, the
Company is also subject to certain other FDA regulations,  and its manufacturing
processes and facilities  are subject to continuing  review by the FDA to insure
compliance  with Good  Manufacturing  Practice.  The Company  believes  that its
manufacturing  and  quality  control  procedures  substantially  conform  to the
requirements of FDA regulations.



                                                                              10
<PAGE>



                              WORKING CAPITAL ITEMS

      Most components and materials  required for the manufacturing  process for
the Company's  products are readily  available on an ongoing basis.  The Company
typically maintains a 60-day supply of components and material for its products,
available  for either  assembly  or  shipment  upon  order.  Larger  supplies of
components having a longer lead time are kept on hand.

                                     BACKLOG

      The Company  manufactures/purchases all products on the basis of committed
and/or projected orders. The Company normally ships  non-personalized  Rota-dent
products in one day and personalized  products within two to three days of order
receipt.  The Company ships other products as requested.  The Company  typically
has no material order backlog and has never experienced any significant delay in
shipping  orders.  The Company  does not  anticipate  any  significant  delay in
meeting foreseeable product requests.

                               PROPRIETARY RIGHTS

      The Company  currently  holds the following  United States  patents on the
Rota-dent(REGISTERED) and other products as indicated:

a.    Design patent Registration Number D278,764 issued May 14, 1985, for a term
      of  14  years  covering  the  ornamental  design  for  a  battery-operated
      toothbrush.

b.    Design patent Registration Number D295,801 issued May 24, 1988, for a term
      of 14 years covering the ornamental design for a set of brush heads.

c.    Utility  patent  Registration Number 4,869,277  issued September 26, 1989,
      for a term of 17  years covering a brush  head and a  method and apparatus
      for producing the brush head.

d.    Design patent Registration Number D306,236 issued February 27, 1990, for a
      term of 14 years covering the ornamental design for the long pointed brush
      tip.

e.    Design  Patent  Registration  Number D309,062  issued  July 10, 1990,  for
      expiration on  February 27, 2004,  covering  the ornamental design for the
      short pointed brush tip.

f.    Utility patent Registration Number 4,884,849  issued December 5, 1989, for
      a term of 17 years covering  an apparatus and  method of manufacture  of a
      brush head.

g.    Utility  patent Registration Number 4827552 issued May 9, 1989, for a term
      of 17 years covering a rotary electric toothbrush.

h.    Utility  patent Registration Number  5,052,419 issued October 1, 1991, for
      expiration on September 26, 2006, covering  a brush head, and a method and
      apparatus for producing the brush head.



                                                                              11
<PAGE>



i.    Utility patent Registration Number 5,072,482 issued December 17, 1991, for
      a term of 17 years covering a brush head, apparatus and method for
      producing the brush head.
j.    Utility patent Registration Number 5,078,158 issued January 7, 1992, for a
      term of 17 years covering a brush head with a shaped bottom plate.

k.    Utility patent Registration Number 5,090,902 issued February 25, 1992, for
      a term of 17 years covering a multi-measurement periodontal probe.

l.    Utility  patent Registration  Number 5,109,563  issued May 5, 1992,  for a
      term of 17 years covering a soft brush gum stimulator.

m.    Utility  patent Registration  Number 5,112,226 issued  May 12, 1992, for a
      term of 17 years covering a constant pressure periodontal probe.

n.    Utility  patent Registration  Number 5,146,643  issued September 15, 1992,
      for a term of 17 years covering an end brush, and apparatus and method for
      producing the end brush.

o.    Utility  patent Registration  Number 5,148,568 issued  September 22, 1992,
      for a term of 17 years covering an apparatus and method  for making an end
      brush.

p.    Design  patent Registration  Number D334,842  issued April 20,  1993 for a
      term  of 14 years  covering  the  ornamental  design  for  a  triple  head
      toothbrush.

q.    Utility patent Registration  Number 5,205,302 issued April 27, 1993, for a
      term  of 17 years  covering a gum stimulator  which has  a removable brush
      composed of a high-density of soft thin fibers.

r.    Utility patent Registration Number 5,234,009 issued August 10, 1993, for a
      term  of 17 years  covering a  toothpick having  opposite  ends adapted to
      clean the interstitial spaces and tooth surfaces between adjacent teeth.

s.    Utility patent Registration  Number 5,276,935 issued January 11, 1994, for
      a term of 17 years  covering dental  brushes impregnated with a medicament
      for slow release during brushing.

      The Company has also  obtained  patents or  trademarks  or has applied for
patents  or  trademarks  under the laws of 28  foreign  countries.  The  Company
believes  that the patents  issued to it are  material to its business and seeks
vigorously to protect its rights against infringement.

      The Company  owns,  or has licensed the rights to, a number of  registered
trademarks.  Those owned include Rota-dent,  Pro-Dentec,  Pro-Dentx, PDT Sensor,
STM,  Beyond STM, Soft Tissue  Management,  Professional  Relationship  Program,
Victor,  Pro-Cam and Mobius. Those licensed include PerfectByte,  Periocheck and
Biocheck.  In addition,  the Company has registrations  pending on certain other
trade names and has trademarked the names of all of its other products.



                                                                              12
<PAGE>



                                    EMPLOYEES

      As of December 31, 1998, the Company  employed 350 persons  full-time,  of
whom 175 worked in manufacturing,  132 in sales and marketing,  with the balance
in  administration,  product  development and management.  None of the Company's
employees are  represented  by a labor  organization,  and the Company has never
experienced a work stoppage or interruption  due to a labor dispute.  Management
believes that relations with its employees are good.

ITEM 2.  PROPERTIES
-------  ----------

      The Company owns four buildings in Batesville, Arkansas containing a total
of 49,000 square feet of  administration,  warehouse and production  space.  The
Company has outstanding  mortgages on the buildings  totaling $0.6 million.  The
Company  believes that the  facilities  are adequate for its current  production
needs and that  additional  space,  if needed,  can be  constructed or purchased
without  materially  affecting  operations.  The  Company  has also  purchased a
60-acre  tract of land to allow  for  future  expansion  and  construction;  the
mortgage on this property is $0.2 million.

      The Company leases space in four other buildings in Batesville,  Arkansas,
for a monthly rental of $4,700. One building houses the Company's  warehouse and
its shipping and receiving  facilities.  It is leased on a  year-to-year  basis,
with two renewal  terms  remaining.  Another  building is used as a  woodworking
facility for  construction of computer  system carts and is on a  month-to-month
lease. The third building is used as a training  facility,  which is leased on a
year-to-year  basis. The fourth space is used for additional offices and meeting
rooms.  The Company  believes that these facilities are adequate for its current
needs.

ITEM 3.  LEGAL PROCEEDINGS
-------  -----------------

      On  June  26,  1995,  PDT  Image,  Inc.,  a  wholly  owned  subsidiary  of
Professional Dental Technologies,  Inc., filed a Petition for Declaratory Decree
and Restraining  Order in the Chancery Court of Independence  County,  Arkansas,
against Source-1 Dental Image, Inc., ("SDI") and its two principal officers. SDI
and PDT Image were partners in the partnership  known as Pro-Dentec  Canada.  In
its decree dated April 22, 1997, the Court issued its ruling in the matter.  SDI
and its two  principal  officers  were found to have  breached  their  fiduciary
responsibility,  committed  actual and  constructive  fraud and engaged in civil
conspiracy.  They were also found to be in contempt of the Temporary Restraining
Order.

      The Court has ruled that the  partnership  agreement  be  rescinded,  that
SDI's license rights in software developed be awarded to PDT Image, and that SDI
and its principals make  restitution to PDT Image in the amount of approximately
$909,000. The SDI principals are personally and individually responsible for the
payment  of the  restitution.  The  Temporary  Restraining  Order  has been made
permanent.

      On May 5, 1997, SDI and its two principal officers filed Notice of Appeal.
All briefs  regarding  the appeal have been filed,  and the parties are awaiting
the  decision  of the  appellate  court.  SDI did not post an appeal bond so PDT
Image is  proceeding  with efforts to have the judgment  enforced in Canada.  In
order to enforce its  judgment,  the Company  brought  suit  against SDI and its
principals on June 2, 1997, in the Supreme Court of British  Columbia to require
payment on the Arkansas judgment and to enforce the restraining order.



                                                                              13
<PAGE>



      Also on June 2, 1997, a complaint was filed in the Federal  District Court
in Oakland,  California,  against Eric Chasanoff, a software programmer, and his
company,  Raster  Builders,  Inc.  Chasanoff  was  not a party  to the  Arkansas
litigation.  The complaint alleges copyright  infringement,  unfair competition,
breach of contract and civil  conspiracy.  A motion was also filed for the grant
of a preliminary injunction barring continuing copyright infringement. The order
granting  this  preliminary  injunction  was signed by the Court on December 22,
1997. On January 16, 1998, an amended complaint was filed,  joining certain U.S.
and Canadian  companies (who are engaged in the  distribution  of the infringing
software) into the lawsuit.

      On February 9, 1998, PDT Image,  Inc. entered into a settlement  agreement
with SDI, David Gane and Wayne Rees;  Raster Builders,  Inc. and Eric Chasanoff;
and certain other Canadian  companies and individuals.  The settlement  provided
for  the  payment  of  $750,000  in  cash  to  PDT  in  consideration   for  PDT
relinquishing its proprietary interests in the software. The parties agreed to a
mutual release of all claims and suits relating to the proprietary  interests in
the software.  The $750,000 settlement was received in the second fiscal quarter
and reported,  net of associated  legal costs,  in Other  Income/Expense  in the
consolidated financial statements.

      On  April  24,  1997,  the  Company  and  its  subsidiary  PDT  Production
Corporation ("PDT  Production") were served with a complaint by Lysta Production
A/S ("Lysta") in the U. S. District Court,  Eastern District of Arkansas.  Lysta
is a sister company of Lyco, Inc. ("Lyco"),  PDT Production's  former partner in
Prolyco  Production  Company  ("Prolyco").  Prolyco  manufactured the PDT Sensor
Sc/RP ultrasonic dental scaler previously sold by the Company.

      Lysta's complaint  concerned PDT Production's  purchase of Lyco's interest
in Prolyco on September 20, 1996, PDT Production's  subsequent assignment of its
assets for the benefit of creditors and its  obligation  for  royalties  under a
license agreement  between Lysta and Prolyco which were allegedly  guaranteed by
the  Company.  The Company and PDT  Production  executed a  promissory  note for
approximately  $45,000 as  consideration  for royalties  purportedly due under a
license agreement between Lysta and Prolyco.

      Lysta claimed it was entitled to the face amount of the  promissory  note,
minimum   royalties  it  claimed  under  the  license  agreement  prior  to  PDT
Production's  assignment  of its assets  for the  benefit  of  creditors  in the
approximate amount of $50,000,  additional minimum royalties allegedly due under
the license  agreement  in the amount of $8.8  million,  alleged  damages in the
approximate  amount of $112,000 related to purported  wrongful  detention of and
damage to equipment used to manufacture ultrasonic dental scalers, plus punitive
damages.  In  addition,  Lysta  sought  an  injunction  based  on a  non-compete
agreement that allegedly prohibited the Company from producing ultrasonic dental
scalers similar to Lysta's.

      On February 7, 1998,  the Company  entered into an agreement with Lysta to
settle the lawsuit. The settlement significantly reduced the amount of royalties
the Company  would have been  required to pay if the license  agreement had been
enforced.  The parties  agreed to a mutual  release of all claims  against  each
other,  thereby  freeing  the  Company  of any claim by Lysta that it cannot use
certain  information to produce  ultrasonic  dental  scalers.  The impact of the
settlement of the Company's financial condition was not material.




                                                                              14
<PAGE>



      On May 29,  1997,  the  Company  was  served  with a  lawsuit  by a former
employee, alleging discrimination on the basis of her sex. The suit was filed in
the United States District Court for the Eastern District of Arkansas.  The suit
was settled on February  16,  1998,  with no  material  effect on the  Company's
financial condition.


      The Company is not aware of any other  material  litigation  involving the
Company or any of its officers or directors.

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

      No matters were submitted to a vote of security  holders during the fourth
quarter of the fiscal year covered by this report.





                                                                              15
<PAGE>



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------  -------------------------------------------------
         STOCKHOLDERS MATTERS
         --------------------

      As of  December  31,  1998,  the  Company had 293 holders of record of its
Common  Stock.  The  Company's  Common  Stock is  traded on the  American  Stock
Exchange Emerging Company Marketplace.

      The following are the high and low prices of the Company's Common Stock as
published by the American Stock Exchange Emerging Company Marketplace:

      Quarter Ended                  High Close            Low Close
      -------------                  ----------            ---------

      JANUARY 31, 1997              1                          9/16
      APRIL 30, 1997                2                       1
      JULY 31, 1997                 1 7/16                    15/16
      OCTOBER 31, 1997              1 3/16                    3/4
      JANUARY 31, 1998              1 3/16                    3/4
      APRIL 30, 1998                1 3/8                     15/16
      JULY 31, 1998                 1 1/16                    3/4
      OCTOBER 31, 1998               15/16                    11/16

      In May 1991, the Company's  Registration  Statement on Form 10 filed under
the  Securities  Exchange  Act of 1934,  as amended,  became  effective  and the
Company thereby became a "reporting  Company" subject to the periodic  reporting
and other  requirements  of such Act. In March of 1992,  the Company  listed its
shares  of  Common  Stock  on  the  American  Stock  Exchange  Emerging  Company
Marketplace.

      The Company  historically has not paid cash dividends on its Common Stock.
While the Company does not currently intend to pay regular cash dividends,  this
policy  will be reviewed  periodically  by the Board of  Directors,  taking into
account, among other things, the Company's earnings and financial position.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------  -------------------------------------------------
         CONDITION AND RESULTS OF OPERATIONS.
         ------------------------------------

                           FISCAL YEARS 1998 AND 1997

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for forward-looking statements.  Certain information included in this Report and
other such Company  filings  (collectively,  "SEC filings") under the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (as
well as information  communicated orally or in writing between the dates of such
SEC filings) contains or may contain  information that is forward looking.  Such
forward-looking  information  involves  important  risks and  uncertainties that


                                                                              16
<PAGE>



could significantly affect expected results. The Company cautions investors that
any such  forward-looking  statements  made by the Company are not guarantees of
future  performance and that actual results may differ  materially from those in
the forward-looking statements. The following are some of the factors that could
cause  actual  results to differ  materially  from  estimates  contained  in the
Company's  forward-looking  statements:  the  pattern  of the  Company's  sales,
including variations in sales volume within periods, which makes forward-looking
statements  about  sales and  earnings  difficult  and may result in variance of
actual results from those  contained in statements made at any time prior to the
period's  close;  vigorous  competition  within the Company's  product  markets,
including  pricing and promotional,  advertising or other activities in order to
preserve or gain  market  share,  the timing of which  cannot be foreseen by the
Company;  the  Company's  reliance on the  development  of new  products and the
inherent risks associated with new product introductions,  including uncertainty
of trade  and  customer  acceptance  and  competitive  reaction;  the  Company's
reliance on new systems  implementation;  the costs and effects of unanticipated
legal and  administrative  proceedings;  the impacts of unusual items  resulting
from  ongoing   evaluations  of  business   strategies,   asset  valuations  and
organizational  structure;  the impact on sales or earnings of  fluctuations  in
exchange rates in one or more of the Company's geographic markets; the impact of
the Year 2000 on the Company's  order,  production,  distribution  and financial
systems and the systems of its suppliers and customers;  and the  possibility of
one or more of the global  markets in which the Company  competes being impacted
by  variations  in  political,  economic,  or other  factors,  such as  currency
exchange rates, inflation rates,  recessionary or expansive trends, tax changes,
legal and regulatory  changes or other  external  factors over which the Company
has no control.

                              RESULTS OF OPERATIONS

      For fiscal year 1998,  net sales  totaled  $27.5  million,  a 16% increase
compared to net sales of $23.8  million in 1997.  The increase can be attributed
to higher  sales of the  Rota-dent  and  accessories,  the  scaler,  and  dental
pharmaceuticals;  and to a 6% price  increase  of the  scaler;  and a 10%  price
increase of the dental  pharmaceuticals  implemented  midway  through the fiscal
year.  The  increase  was  partially  offset by a decrease  in sales of computer
systems and software.

      The  Company's   revenues  for  both  1998  and  1997  were  substantially
attributable to sales of Rota-dents and associated accessory products. In fiscal
years  1998  and  1997,  revenue  from the sale of  Rota-dents  and  accessories
amounted to approximately $17.7 million and $16.8 million,  respectively.  Sales
revenues from equipment  (scalers,  computer  systems and software)  amounted to
$5.9 million for 1998 and $3.8  million in 1997.  Sales of  pharmaceuticals  and
other products and services were $3.9 million in 1998 and $3.2 million in 1997.

      The cost of goods  sold in fiscal  1998 was $10.8  million,  and in fiscal
1997, $10.1 million.  As a percentage of sales,  cost of goods sold was 39.2% in
1998  compared  to 42.6%  in  1997.  The  decrease  in cost of  goods  sold as a
percentage of sales revenue was primarily due to improved operating efficiencies
in the production of the Rota-dent and the scaler,  a price increase of both the
scaler and the dental pharmaceutical line, and a reduction in royalties.

      Operating  expense  (selling,   general  &  administrative,   and  product
development) was $15.0 million in 1998 compared to $12.5 million in fiscal 1997.
The increase in operating expense is attributable to increased selling,  general
and administrative (G&A), and product development expenses in 1998. Selling


                                                                              17
<PAGE>



expenses increased as a result of an approximate 17% increase in the size of the
field  sales  force  and  higher advertising  and  sales  promotional costs. G&A
expense increased  primarily as  a result of higher professional services costs.
Product development expense increased primarily due to staffing changes.

      Other  income and  expense  netted to an income of $0.3  million in fiscal
1998  compared to a net expense of $0.5  million in fiscal  1997.  The income in
this category is related primarily to the non-recurring  settlement of lawsuits.
The offsetting  expenses  include the Company's  pro-rata share of the operating
profit  and  loss  of  its  non-consolidated   equity  affiliates  and  interest
income/expense.  The 1998 amount  reflects lower losses in the  non-consolidated
equity  affiliate,  partially  reduced  by  higher  interest  expense  than that
incurred in 1997.

      The Company's net income in fiscal 1998 was $1.2 million,  compared to net
income of $0.5 million in fiscal 1997. If the non-recurring  amounts relating to
the  settlement  of lawsuits were  disregarded,  net income would have been $0.8
million.

                       IMPACT OF NEW ACCOUNTING STANDARDS

      In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128,  EARNINGS PER SHARE.  SFAS No. 128 establishes  standards for
computing and presenting earnings per share ("EPS").  The previous  presentation
of primary EPS is replaced with a presentation  of basic EPS. Dual  presentation
of basic and diluted EPS is  required on the face of the income  statements,  as
well as a  reconciliation  of the  numerator  and  denominator  of the basic EPS
computation  to the numerator and  denominator  of the diluted EPS  computation.
Basic EPS  excludes  dilution  and is computed by dividing  income  available to
common stockholders by the weighted-average  number of common shares outstanding
for the period.  Diluted EPS is computed similarly to fully diluted EPS pursuant
to Accounting  Principles Board Opinion No. 15. The Company adopted SFAS No. 128
for the year ended October 31, 1998, and prior periods were restated.

      In June 1997, the FASB issued Statement No. 130,  REPORTING  COMPREHENSIVE
INCOME.   SFAS  130   establishes   standards   for  reporting  and  display  of
comprehensive  income and its components.  SFAS requires that all items that are
required  to  be  recognized  under   accounting   standards  as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.  The Company will be required
to classify items of other  comprehensive  income by their nature in a financial
statement  and display the  accumulated  balance of other  comprehensive  income
separately  from  retained  earnings  and  additional  paid-in  capital  in  the
stockholders'  equity section of the balance sheet.  Also in June 1997, the FASB
issued  Statement  No. 131,  DISCLOSURES  ABOUT  SEGMENTS OF AN  ENTERPRISE  AND
RELATED  INFORMATION,  establishing  standards  for the way  public  enterprises
report  information about operating segments in interim financial reports issued
to shareholders.  It also establishes  standards for related  disclosures  about
products and services,  geographic areas, and major customers.  SFAS 130 and 131
are  effective  for  fiscal  years  beginning  after  December  15,  1997,  with
reclassification  of earlier  periods.  The  adoption of SFAS 130 and 131 is not
expected  to have a  material  effect on the  Company's  consolidated  financial
statements.

      In  February  1998,  the  FASB  issued   Statement  No.  132,   EMPLOYERS'
DISCLOSURES ABOUT PENSIONS AND OTHER  POSTRETIREMENT  BENEFITS,  an amendment of
FASB Statements No. 87, 88 and 106. The Statement revises employers' disclosures


                                                                              18
<PAGE>



about  pensions  and  other  postretirement  benefits.  It does not  change  the
measurement  or  recognition  of those plans.  It  standardizes  the  disclosure
requirements  for  pensions  and other  postretirement  benefits  to the  extent
practicable,   requires  additional   information  on  changes  in  the  benefit
obligations  and fair  values  of plan  assets  that will  facilitate  financial
analysis,  and eliminates  certain  disclosures  that are no longer as useful as
they were when FASB Statements No. 87, 88, and 106 were issued. The Statement is
effective for fiscal years  beginning  after  December 15, 1997. The adoption of
SFAS 132 is not expected to have a material effect on the Company's consolidated
financial statements.

      In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES.  This Statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments   embedded  in  other   contracts   (collectively   referred  to  as
derivatives),  and for hedging activities.  It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those  instruments  at fair value.  This statement is effective for fiscal years
beginning  after June 15, 1999.  The adoption of SFAS No. 133 is not expected to
have a material effect on the Company's consolidated financial statements.

                         CAPITAL RESOURCES AND LIQUIDITY

      As of fiscal year end 1998,  the Company had total assets of $11.2 million
compared to $9.0 million in 1997.  Total  liabilities  were $5.4 million in 1998
compared to $4.4  million in 1997.  The  increase in assets  primarily  reflects
additional  investment in fixed assets during 1998, and higher trade receivables
and inventory  resulting from increased 1998 sales levels.  At October 31, 1998,
stockholders'  equity had  improved to $5.8 million from $4.6 million at the end
of the previous year. The current ratio remained 2.0 at year end.

      Total  short  term  indebtedness  (draws  on line of credit  plus  current
portion of long term debt and  capital  leases)  was $1.5  million at the end of
1998  compared to $0.8 million in 1997.  Long term debt was $1.2 million at 1998
year-end, compared to $1.3 million in 1997. The Company believes that it will be
able to retire this debt from future cash flows from operations.

      During fiscal years 1998 and 1997,  net cash  provided from  operations of
$0.9 million and $1.1  million,  was  primarily  used to increase  investment in
capital items,  including  manufacturing  space and  manufacturing  and computer
equipment,  to retire  debt,  and in 1998,  to increase the  Company's  net cash
position.

      Until March 1998, the Company paid a royalty to a foreign company of $3.00
for each  Rota-dent  unit sold as part of the cost of obtaining  the  world-wide
rights to manufacture  and distribute  the product,  under an agreement  entered
into in December 1988. At that time,  under the terms of the agreement,  the per
unit  royalty  decreased  to $1.50 after an aggregate of $5 million of royalties
had been paid.

      In October 1994,  the Company signed an agreement to enter into a business
relationship with Aztec Developments Ltd., a British company. Since fiscal 1995,
Aztec and the Company  worked to develop an  automated  periodontal  probe.  The
Company  expects  to bring this  product to market in 1999.  During the 24 month
period commencing with the date of the first commercial sale of the product, the
Company  is  committed  to  incur marketing  expenditures of  not less than $0.3


                                                                              19
<PAGE>



million  in connection with  the sale  of this product, in return for 50% of the
profits of  the venture. The Company does  not  believe that  these expenditures
will adversely impact its liquidity.

      The Company has established  reserves for potential warranty claims on its
products,   and  such  claims  have   historically   been  within   management's
expectations.

      The Company  defines  liquidity  as the ability of the Company to generate
adequate amounts of cash to meet the Company's  operating needs. The Company has
historically  relied on cash provided from  operations to meet a majority of its
financial  needs and anticipates  this will continue in the near term.  However,
the Company  currently has a revolving  line of credit with NBD Bank under which
it can draw up to $3 million,  subject to the  availability of collateral.  This
line of credit is primarily secured by receivables and inventory, and is used to
finance the working capital  requirements  of the Company.  The Company also has
other  sources of credit with which it can finance the purchase of fixed assets.
The  Company  believes  these  sources  of credit  combined  with cash flow from
operations will be sufficient to meet its foreseeable cash requirements.

                                    YEAR 2000

      Certain  software  and  hardware  systems are time  sensitive.  Older time
sensitive  systems  often use a two digit  dating  convention  ("00" rather than
"2000") that could result in system  failure and disruption of operations as the
Year 2000  approaches.  The Year 2000  problem  will  impact  the  Company,  its
suppliers, customers, and other third parties that interface with the Company to
the extent that they are not Year 2000 compliant.

      With regard to its internal Year 2000  program,  the Company has adopted a
five-phase  conversion  plan. In completing the first two phases,  awareness and
assessment,  the Company has identified numerous project initiatives  throughout
its business units and has begun the third phase,  the purchase and installation
of new computer  equipment and upgrading of software  systems,  in most areas. A
steering team comprised of members from the key  functional  areas - accounting,
finance,  legal,  manufacturing  systems,  and  information  systems  - has been
established  to monitor and oversee the  progress of each  project.  The Company
believes that it will complete the  conversion  process by mid-fiscal  year 1999
and have contingency plans in place for all  mission-critical  functions at that
time.

      The  impact of Year 2000  issues on the  Company  will  depend not only on
corrective  actions  that the Company  takes,  but also on the way in which Year
2000 issues are  addressed by  governmental  agencies,  business and other third
parties that provide goods,  services or data to, or receive goods,  services or
data from, the Company, or whose financial  condition or operational  capability
is important to the Company. To reduce this exposure, the Company has an ongoing
process of identifying and contacting  mission-critical  third party vendors and
other  significant  third parties to determine  their Year 2000 plans and target
dates. Notwithstanding the Company's efforts, there can be no assurance that the
Company,  mission-critical  third  party  vendors,  or other  significant  third
parties will adequately address their Year 2000 issues.

      Upon  review of the  software  developed  and  distributed  by the Company
through its wholly-owned subsidiary, PDT Computers, it appears that the software
is Year 2000  compliant.  The Company is advising and working with  customers to
resolve  their Year  2000 problems;  however, it  believes  it  has  no material


                                                                              20
<PAGE>



exposure  to  contingencies  related  to the Year 2000  issue  for the  software
products it has sold.

      The total  cost of the  modifications  and  upgrades  to date has not been
material.  The  estimated  probable  cost to complete  the  conversion  is $0.05
million,  and the  Company  anticipates  that it will  spend no more than  $0.08
million. Estimates of Year 2000 related costs are based on numerous assumptions;
there is no certainty that estimates will be achieved, and actual costs could be
materially greater than anticipated.

      Although  no  assurances  can be  given  as to the  Company's  compliance,
particularly  as it relates to third  parties,  based upon the progress to date,
the Company  does not expect  that  modifications  will have a material  adverse
effect  on  the  Company's   financial   position  or  results  of   operations.
Accordingly,  the Company  believes that the most  reasonably  likely worst case
Year 2000  scenario  would not have a material  adverse  effect on the Company's
financial position or results of operations.


ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------  --------------------------------------------

      The required financial statements and supplementary data are included in a
separate  section  following  the  signature  page as an  addendum  to this Form
10-KSB.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
-------  ------------------------------------------------
         ACCOUNTING AND FINANCIAL DISCLOSURE
         -----------------------------------

None.



                                                                              21
<PAGE>



                                    PART III
                                    --------

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS
-------  --------------------------------

      The directors and executive officers of the Company are as follows:

                                        TERM EXPIRES
NAME                    AGE AT 1/1/99   AS DIRECTOR          POSITION

William T. Evans              56            1999      Director, President and
                                                      Chief Executive Officer

Robert E. Christian           37            1999      Director, Executive Vice
                                                      President, Secretary and
                                                      Treasurer

Frank H. Newton, III          58                      Chief Operating Officer

Richard L. Land               53                      Vice President, Controller

J. Robert Lemon               56            1999      Director

Timothy A. Nolan              45            1999      Director

J. Philip Boesel              66            1999      Director

Michael S. Black              47            1999      Director

      William T.  Evans  became  President  and Chief  Executive  Officer of the
Company in February  1996.  Previously,  he was the Executive Vice President and
Secretary,  and has been a  Director  since  1987.  Mr.  Evans was an officer of
Dynavest Partnership, the original licensee for the Rota-dent product, from 1981
until its  dissolution  in December of 1992.  He has been an officer of Multiway
Associates,  a specialty nutrition company, since 1982. Mr. Evans is a cousin of
Timothy A. Nolan, a director of the Company.

      Robert  E.  Christian  became  Executive  Vice  President,  Secretary  and
Treasurer of the Company in February  1996.  Previously,  he was the Senior Vice
President and Treasurer,  and has been a director since 1988. Mr.  Christian has
been  Vice  President  of  Data  Control  and  Computer  Services  for  Multiway
Associates, a specialty nutrition company, since 1982.

      Frank H. Newton, III has been Chief Operating Officer of the Company since
February 1993. Prior to joining the Company,  Mr. Newton was President and Chief
Operating Officer of Scott Instruments  Corporation,  Denton, Texas, since 1988,
and prior to that,  President and Chief Executive Officer of AVM Systems,  Inc.,
Fort Worth, Texas, for six years.



                                                                              22
<PAGE>



      Richard L. Land has been the Controller of the Company since June 1996. He
was  elected  Vice  President  in March 1997.  Prior to that time,  he served as
Controller of Darling Special Products,  Inc.,  Caruthersville,  Missouri, since
1990, and as General Accounting Manager of the Columbus Division of General Tire
and Rubber, Columbus,  Mississippi, for four years. Mr. Land was awarded the CPA
Certificate by the state of Missouri in 1990.

      J. Robert Lemon has been a director of the Company since 1987,  and served
as its  President  from 1987 to 1996,  when he  resigned  to devote full time to
other business interests. He continues to work with the Company as a consultant.
Mr. Lemon was an officer of Dynavest Partnership,  the original licensee for the
Rota-dent  product,  from 1981 until its dissolution in December,  1992; and has
been an officer of Multiway  Associates,  a specialty  nutrition company,  since
1982.

      Timothy A. Nolan has been a director of the Company since 1988.  Mr. Nolan
has been  Managing  Director  of  Multiway  Associates,  a  specialty  nutrition
company,  since 1987,  and an officer  and  director  of V. M.  Nutri,  Inc.,  a
specialty  nutrition  company,  since 1989.  He has been employed by V. M. Nutri
since 1982. Mr. Nolan is the cousin of William T. Evans.

      J. Philip  Boesel,  Jr. has been a director of the Company  since 1995. He
was the First Vice President, Investment Banking of Kirkpatrick,  Pettis, Smith,
Polian, Inc. from 1991 to 1996.  Kirkpatrick Pettis is a subsidiary of Mutual of
Omaha.  Prior to this Mr. Boesel was the President of Robert G. Dickinson & Co.,
a regional investment banking firm, from 1971 through 1990, when the company was
sold. Mr. Boesel is a former Governor of the National  Association of Securities
Dealers,  and is currently a director of several  privately-held  companies.  He
holds a B.B.A. degree from the University of Wisconsin,  and a Masters degree in
Business from Michigan State University.

      Michael S. Black has been a director  of the Company  since  1996.  He has
been a partner in the firm of Smith & Black, CPA's and Consultants,  since 1988.
He  specializes  in the areas of  corporate  information  systems and  corporate
income tax. Mr. Black holds a B.B.A degrees in  Accounting  and Finance from the
University of Wisconsin at Whitewater, and is a Certified Public Accountant.




                                                                              23
<PAGE>



ITEM 10.  EXECUTIVE COMPENSATION
--------  ----------------------

      The following table sets forth the compensation  paid to William T. Evans,
Pro-Dentec's  President,  and other  executive  officers whose cash and non-cash
compensation exceeded $100,000 during the fiscal year ended October 31, 1998.

  NAME &                                    BONUS
  PRINCIPAL                                 (YEAR     OPTIONS/     ALL OTHER
  POSITION                YEAR    SALARY    EARNED)   SARS (#)   COMPENSATION(1)

  William T. Evans        1998   $140,000      -0-     -0-            -0-
  President               1997    140,000      -0-     -0-            -0-
                          1996    140,000      -0-     -0-            -0-

  Frank H. Newton, III    1998   $125,000      -0-     -0-            -0-
  Chief Operating Officer 1997    125,000      -0-     -0-            -0-
                          1996    125,000      -0-     -0-            -0-


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                               (Individual Grants)

                                          PERCENT OF
                                             TOTAL
                                         OPTIONS/SARS   EXERCISE OR
                           OPTIONS/SARS   EMPLOYEES     BASE PRICE    EXPIRATION
       NAME                 GRANTED (#)  IN FISCAL YEAR    ($/SH.)       DATE
       ----                 -----------  --------------    -------       ----

William T. Evans                -0-          -0-            -0-           -0-
President

Robert E. Christian             -0-          -0-            -0-           -0-
Executive Vice President

Frank H. Newton, III            -0-          -0-            -0-           -0-
Chief Operating Officer

Richard L. Land                 -0-          -0-            -0-           -0-
Vice President, Controller


--------
1The Company also provides certain of its senior executive officers with certain
personal benefits. The Company believes that the individual and aggregate amount
of  such benefits does  not exceed, in  the  case of  any named  individual, the
lesser of $50,000 or 10% of the reported cash compensation for such individual.



                                                                              24
<PAGE>



           AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
                            FY-END OPTION/SAR VALUES

                                                               VALUE OF
                                             NUMBER OF         UNEXERCISED
                                             UNEXERCISED       IN-THE-MONEY
                                             OPTIONS/SARS      OPTIONS/SARS
                                             AT FISCAL         AT FISCAL
                    SHARES      VALUE        YEAR-END (#)      YEAR-END ($)
                  ACQUIRED ON   REALIZED     EXERCISABLE/      EXERCISABLE/
   NAME           EXERCISE (#)   ($)         UNEXERCISABLE     UNEXERCISABLE
   ----           ------------   ---         -------------     -------------

William T. Evans     -0-         -0-            -0-                 -0-

Robert E. Christian  -0-         -0-            -0-                 -0-

Frank H. Newton, III -0-         -0-       -0-/100,000           -0-/-0-

Richard L. Land      -0-         -0-       -0-/25,000            -0-/$4,688

      Mr. Newton was granted stock options  totaling  100,000  shares vesting in
lots of 25,000  shares per year with exercise  dates  beginning on June 13, 1998
and ending on June 13, 2001.  The options  expire on June 13, 2004. Mr. Land was
granted stock options  totaling  25,000 shares  vesting on December 2, 2001. The
options expire on December 2, 2006.

      Based  solely upon a review of Forms 3, 4 and 5  furnished  to the Company
during or with respect to fiscal 1998, the Company is not aware of any director,
officer or ten percent  shareholder  that failed to file on a timely  basis,  as
disclosed  in the above  referenced  Forms,  reports  required by Section 16 (a)
under the Securities Exchange Act of 1934 during fiscal 1998 or a prior year.

      Outside  directors  (Mr.  Boesel and Mr. Black) are  compensated  on a per
meeting  basis,  at the rate of $1,000 per board  meeting and $500 per committee
meeting.  Other  directors,  who are all  officers  either of the Company or its
affiliate, Life Plus, receive no additional compensation for their services.

                                   OPTION PLAN

      In 1989, the Company  adopted the Pro-Dentec  Incentive  Stock Option Plan
("Plan")  pursuant  to which  stock  options  ("Options")  may be granted to key
employees and other individuals  providing services to the Company. Five million
(5,000,000)  shares have been reserved for issuance under the Plan, subject to a
limitation  that  options  covering  shares in excess of 10% of the  outstanding
shares may not be granted  during any one year.  The Plan is  administered  by a
committee  comprised of three  members of the Board of Directors of the Company.
Options must be granted at the fair market value of the covered shares as of the
date of grant.  The Plan has been approved by the  shareholders.  Options may be
granted for a term of up to ten years, but may be terminated upon termination of
employment.  In 1998, no option shares expired or were terminated. As of October
31, 1998,  options  relating to a total of 1,296,000  shares had been granted to
employees and others, of which 25,000 were granted in fiscal 1998.



                                                                              25
<PAGE>



ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
--------  -----------------------------------------------
          AND MANAGEMENT
          --------------

      The  following  table sets forth as of  January  1, 1999,  the  beneficial
ownership of the Company's Common Stock, $.01 par value, by all persons known by
the Company to own,  beneficially  or of record,  more than five  percent of the
Company's Common Stock, by each director of the Company, and by all officers and
directors as a group:

      NAME AND ADDRESS OF     AMOUNT AND NATURE OF          PERCENT OF
      BENEFICIAL OWNER        BENEFICIAL OWNERSHIP            CLASS
      ----------------        --------------------            -----

      William T. Evans          5,078,178(2)                  36.0%
      P. O. Box 4129
      Batesville, AR  72503

      J. Robert Lemon           4,904,242(3)                  34.8%
      P. O. Box 4129
      Batesville, AR  72503

      Robert E. Christian         310,400                      2.2%
      P. O. Box 4129
      Batesville, AR  72503

      Timothy A. Nolan          5,603,760(4)                  39.7%
      P. O. Box 4129
      Batesville, AR  72503

      Directors and Officers as
      a group (8 persons)      10,605,220                     75.2%

--------------------
2 Includes  4,211,360 shares  held by a trust principally for the benefit of Mr.
Evans. Also includes 717,000 shares  held in trust for the benefit of Mr. Evans'
nephew for which he disclaims beneficial ownership.

3 Includes 4,093,360 shares  held by a  trust principally for the benefit of Mr.
Lemon. Also includes 671,000 shares held in trust for the benefit of nephews and
nieces of Mr. Lemon for which he disclaims beneficial ownership.

4 Includes 310,400  shares held  by a trust  for the  benefit of Mr. Nolan. Also
includes  5,293,360  shares  held  as  trustee, for  which  Mr. Nolan  disclaims
beneficial ownership.


                                                                              26
<PAGE>



ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------  ----------------------------------------------

      The  Company  performs   commercial   printing   services  for  Life  Plus
International,  a partnership  ("Partnership")  engaged in the  distribution  of
specialty nutrition and other health-related products. Messrs. Evans, Christian,
Lemon and Nolan, all of whom are officers and/or  directors of the Company,  are
beneficiaries of trusts which are partners in the Partnership. Messrs. Lemon and
Nolan are employed by and are  officers of the  Partnership.  During  1998,  the
Company billed Life Plus $0.5 million for printing  services.  Commercial market
rates are charged for these printing services,  based on arms-length negotiation
between the parties. Payment terms are standard for the trade. As of October 31,
1998, Life Plus' payment status was current with regard to receivables  owed the
Company.

      As of October  31,  1998,  the  Company  had made  loans to Mr.  Christian
totaling $47,861. Payments are current.

                                     PART IV

ITEM 13.  FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS
--------  ----------------------------------------------
          ON FORM 8-K
          -----------

1.    All Consolidated Financial Statements

      (a)   Consolidated Balance Sheets at October 31, 1998 and 1997.

      (b)   Consolidated Statements of Income for Each of the Years in the
            Two-Year Periods Ended October 31, 1998 and 1997.

      (c)   Consolidated Statements of Stockholders' Equity for Each of the
            Years in the Two-Year Periods Ended October 31, 1998 and 1997.

      (d)   Consolidated Statements of Cash Flows for Each of the Years in the
            Two-Year Periods Ended October 31, 1998 and 1997.

      (e)   Notes to Consolidated Financial Statements.

2.    Report of Independent Certified Public Accountants.

3.    Reports on Form 8-K.

4.    Exhibits:

      EXHIBIT 3(A) - Articles of Incorporation

      Incorporated  herein  by  reference  to  Exhibit 3.1  to  the Registration
      Statement on Form 10 filed in March 1991 ("1991 Registration Statement")



                                                                              27
<PAGE>



      EXHIBIT 3(B) - Bylaws

      Incorporated  herein by reference  to Exhibit 3.2 to the 1991 Registration
      Statement. Amendments  to  Bylaws  dated  December  20, 1995  incorporated
      herein by reference to  Exhibit 3(b) of Annual Report on  Form 10KSB dated
      October 31, 1996.

      EXHIBIT 4 - Material Contracts

(i)      Stock Incentive Plan.  Incorporated herein by reference to Exhibit 10.1
         of the 1991 Registration Statement.
(ii)     Secured  Credit  Agreement  with  NBD  Bank and  supporting  documents.
         Incorporated  by reference  to Exhibit 4 of Annual Report on Form 10KSB
         dated October 31, 1996.
(iii)    Capital Equipment leases with The CIT Group (6), incorporated herein by
         reference to Exhibit 4 of Annual Report on Form 10KSB dated October 31,
         1996.

      EXHIBIT  21 - Subsidiaries  of  the  Registrant,  incorporated  herein  by
      reference  to Exhibit  21 of Annual Report on Form 10KSB dated October 31,
      1996.

      EXHIBIT 27 - Financial Data Schedule




                                                                              28
<PAGE>



                                   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.

                     PROFESSIONAL DENTAL TECHNOLOGIES, INC.


Date: January 26, 1998                    By:   /s/ William T. Evans
                                                --------------------
                                                William T. Evans
                                                Principal Executive Officer

Date: January 26, 1998                    By:   /s/ Richard L. Land
                                                -------------------
                                                Richard L. Land
                                                Principal Accounting Officer


      Pursuant  to the  requirements  of Section  13 of 15(d) of the  Securities
Exchange Act of 1934,  this report has been signed by the  following  persons on
behalf of the registrant and in the capacities and on the dates indicated.


By:  /s/ J. Robert Lemon                       By:  /s/ Robert E. Christian
     -------------------                            -----------------------
     J. Robert Lemon                                Robert E. Christian
     Director                                       Director

Date:    January 26, 1998                     Date:    January 26, 1998



By:  /s/ William T. Evans                      By:  /s/ J. Philip Boesel
     -------------------                            -----------------------
         William T. Evans                           J. Philip Boesel, Jr.
         Director                                   Director

Date:    January 26, 1998                     Date:    January 26, 1998



By:  /s/ Timothy A. Nolan                      By:  /s/ Michael S. Black
     -------------------                            -----------------------
         Timothy A. Nolan                           Michael S. Black
         Director                                   Director

Date:    January 26, 1998                     Date:   January 26, 1998



<PAGE>


INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders of
Professional Dental Technologies, Inc.
Batesville, Arkansas

We have audited the  accompanying  consolidated  balance sheets of  Professional
Dental  Technologies,  Inc. and  subsidiaries  (the "Company") as of October 31,
1998 and 1997, and the related consolidated statements of income,  stockholders'
equity, and cash flows for the years then ended. These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion of these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of Professional Dental  Technologies,
Inc. and  subsidiaries as of October 31, 1998 and 1997, and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.


/s/DELOITTE & TOUCHE LLP



Little Rock, Arkansas
December 18, 1998

<PAGE>

PROFESSIONAL DENTAL TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
--------------------------------------------------------------------------------


                                                              1998          1997
ASSETS                                                          (IN THOUSANDS)

CURRENT ASSETS:
  Cash and cash equivalents                                $ 1,735       $ 1,267
  Certificates of deposit                                       98            
  Accounts receivable:                                                      
    Trade, net of allowance for doubtful accounts                           
      of $78,000 and $60,000 respectively                    2,444         1,741
    Affiliates                                                 137           133
  Inventory                                                  3,216         2,791
  Advances to officers, directors, and employees                69            70
  Deferred income taxes                                        211           138
  Other current assets                                         403           249
                                                           -------       -------
            Total current assets                             8,313         6,389

PROPERTY AND EQUIPMENT, Net                                  2,731         2,494

DEFERRED INCOME TAXES                                          122            79

OTHER ASSETS, Net of amortization                               13            52
                                                           -------       -------
TOTAL                                                      $11,179       $ 9,014
                                                           =======       =======

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Notes payable - line of credit                           $   865       $   390
  Accounts payable - trade                                   1,045         1,135
  Accrued payroll and payroll taxes                            765           633
  Accrued warranty costs                                       197           117
  Other accrued liabilities                                    617           526
  Current portion of long-term debt                            461           206
  Current portion of capital lease obligations                 209           173
                                                           -------       -------
            Total current liabilities                        4,159         3,180

LONG-TERM DEBT, Net of current portion                         835           755

CAPITAL LEASE OBLIGATIONS, Net of current portion              366           505
                                                           -------       -------
            Total liabilities                                5,360         4,440
                                                           -------       -------

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS' EQUITY:                                                       
  Common stock; par value $.01; 30,000,000 shares authorized;
    14,100,000 shares issued and outstanding                   141           141
  Additional paid-in capital                                   314           289
  Retained earnings                                          5,364         4,144
                                                           -------       -------
            Total stockholders' equity                       5,819         4,574

TOTAL                                                      $11,179       $ 9,014
                                                           =======       =======

See notes to consolidated financial statements.


                                      -2-
<PAGE>

PROFESSIONAL DENTAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
--------------------------------------------------------------------------------


                                                         1998            1997
                                                         (IN THOUSANDS, EXCEPT
                                                        PER SHARE INFORMATION)

SALES                                                   $ 27,524        $ 23,823

COST OF GOODS SOLD                                        10,798          10,145
                                                        --------        --------

            Gross profit                                  16,726          13,678

OPERATING EXPENSES                                        14,978          12,449
                                                        --------        --------

            Income from operations                         1,748           1,229

OTHER INCOME AND (EXPENSES):
  Affiliate activity:
    Equity in net losses                                     (12)          (144)
    Write-down of investments in affiliates                  (57)          (127)
  Interest expense                                          (281)          (242)
  Miscellaneous income, primarily proceeds of lawsuit 
     settlement in 1998                                      606              40
                                                        --------        --------

INCOME BEFORE TAXES                                        2,004             756

PROVISION FOR INCOME TAXES                                   784             293
                                                        --------        --------

NET INCOME                                              $  1,220        $    463
                                                        ========        ========

BASIC EARNINGS PER SHARE                                $  0.09         $   0.03
                                                        ========        ========

DILUTED EARNINGS PER SHARE                              $  0.09         $   0.03
                                                        ========        ========

See notes to consolidated financial statements.




                                     -3-
<PAGE>


PROFESSIONAL DENTAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


                                                      COMMON STOCK         ADDITIONAL                      TOTAL
                                              -----------------------------
                                                  SHARES          PAR       PAID-IN        RETAINED      STOCKHOLDERS'
                                                  ISSUED         VALUE      CAPITAL        EARNINGS        EQUITY
                                              -----------------------------------------------------------------------
                                                                          (IN THOUSANDS)

<S>                                                   <C>          <C>           <C>           <C>            <C>
BALANCE AT NOVEMBER 1, 1996                           14,100       $141          $264          $3,681         $4,086

  Stock options issued for services                                                25                             25
  Net income                                                                                      463            463
                                                                                               ------         ------

BALANCE AT OCTOBER 31, 1997                           14,100        141           289           4,144          4,574

  Stock options issued for services                                                25                             25
  Net income                                                                                    1,220          1,220
                                                                                              -------         ------

BALANCE AT OCTOBER 31, 1998                           14,100       $141          $314          $5,364         $5,819
                                                   =========      =====         =====         =======       ========

See notes to consolidated financial statements.

</TABLE>


                                     -4-
<PAGE>


PROFESSIONAL DENTAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

                                                              1998          1997
                                                                 (IN THOUSANDS)
OPERATING ACTIVITIES:
  Net income                                               $ 1,220        $  463
  Adjustments to reconcile net income to net cash                          
    provided by operating activities:                                      
    Affiliate activity:
      Equity in net losses of affiliates                        12           144
      Write-down of investments in affiliates                   57           127
    Depreciation and amortization                              796           672
    (Gain)/loss on disposal of property and equipment          (7)             8
    Deferred income tax benefit                              (116)          (19)
    Stock options issued for services                           25            25
  Change in:                                                               
    Accounts receivable                                      (707)         (141)
    Inventory                                                (425)         (578)
    Advances to officers, directors, and employees               1            13
    Other current assets                                     (154)          (22)
    Accounts payable - trade                                  (90)           153
    Accrued payroll and payroll taxes                          132           263
    Accrued warranty costs                                      80          (43)
    Other accrued liabilities                                   91            73
                                                          --------       -------
      Net cash provided by operating activities                915         1,138
                                                          --------       -------
INVESTING ACTIVITIES:                                                      
  Purchase of property and equipment                         (932)         (739)
  Proceeds from the sale of property and equipment              20             6
  Proceeds from (purchase of) certificates of deposit         (98)           400
  Proceeds from (investment in) joint ventures                (69)            53
                                                          --------       -------
      Net cash used in investing activities                (1,079)         (280)

FINANCING ACTIVITIES:                                                      
  Increase (decrease) in line of credit                        475         (336)
  Proceeds of long-term debt                                   544           340
  Payment of long-term debt                                  (209)         (202)
  Payment of capital lease obligations                       (178)         (121)

      Net cash provided by (used in) financing activities      632         (319)
                                                          --------       -------

INCREASE IN CASH AND CASH EQUIVALENTS                          468           539

CASH AND CASH EQUIVALENTS:                                                 
  Beginning of period                                        1,267           728
                                                          --------       -------
  End of period                                            $ 1,735       $ 1,267
                                                          ========       =======

                                                                     (Continued)



                                      -5-
<PAGE>


PROFESSIONAL DENTAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
--------------------------------------------------------------------------------


                                                          998        1997
                                                          (IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest                                               $  287     $  231
                                                           ======     ======

    Income taxes                                           $  779     $  246
                                                           ======     ======

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
  FINANCING ACTIVITIES:
  Equipment acquired through capital leases                $   75     $  422
                                                           ======     ======

                                                                     (Concluded)

See notes to consolidated financial statements.





                                      -6-
<PAGE>


PROFESSIONAL DENTAL TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    NATURE OF ORGANIZATION - Professional Dental  Technologies,  Inc. is a group
    of companies headquartered in Batesville, Arkansas, engaged primarily in the
    business of designing,  manufacturing, and marketing innovative products and
    services for dental  professionals  to be used in the diagnosis,  treatment,
    and prevention of periodontal and other dental diseases.

    PRINCIPLES OF CONSOLIDATION - The consolidated  financial statements include
    the accounts of Professional Dental Technologies,  Inc. and its wholly-owned
    subsidiaries:  PDT Byte,  Inc.;  Pro-Dentec FSC, Inc.;  Professional  Dental
    Hygienists, Inc.; PDT Image, Inc.; Professional Dental Manufacturing,  Inc.;
    Professional Dental Marketing,  Inc.;  Professional  Dental Printing,  Inc.;
    Professional  Dental  Probes,  Inc.  (inactive  at October  31,  1998);  and
    Professional  Dental  Technologies  Therapeutics,   Inc.  (collectively  the
    "Company"). All significant intercompany accounts and transactions have been
    eliminated in consolidation.

    ESTIMATES - The  preparation  of financial  statements  in  conformity  with
    generally  accepted  accounting   principles  requires  management  to  make
    estimates  and  assumptions  that affect the reported  amounts of assets and
    liabilities, the 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.

    CASH  AND  CASH  EQUIVALENTS  - For  the  purpose  of  presentation  in  the
    consolidated  statements  of cash flows,  the Company  considers all cash on
    hand and on deposit with depository institutions,  with maturity at the time
    acquired of three months or less, to be cash and cash equivalents.

    CERTIFICATES  OF DEPOSIT - Certificates  of deposit consist of time deposits
    at financial  institutions  with maturities at date of purchase of one year.
    Such instruments are carried at cost which approximates fair market value.

    INVENTORY - Inventory  is  recorded  at the lower of cost  (determined  on a
    first-in, first-out basis) or market.

    PROPERTY  AND  EQUIPMENT  - Property  and  equipment  is stated at cost less
    accumulated  depreciation.  Depreciation  is  calculated  using  accelerated
    methods and is expensed based on the estimated useful lives of the assets.

    LONG-LIVED  ASSETS - The  Company  reviews  long-lived  assets  and  certain
    identifiable  intangibles to be held and used for impairment whenever events
    or changes in  circumstances  indicate that the carrying  amount of an asset
    may not be  recoverable.  No impairment loss has been recognized in the 1998
    or 1997 financial statements.

    INVESTMENTS  IN AND  ADVANCES TO  AFFILIATES  - The Company  uses the equity
    method to account for  investments in affiliates,  primarily joint ventures,
    in which the Company has a 20% to 50% interest.


                                      -7-
<PAGE>


    REVENUE  RECOGNITION  -  Revenue  is  recognized  at the time  that  product
    ownership  transfers to the customer,  principally  at the time of shipment.
    Revenue  from  computer  software  maintenance  agreements  is deferred  and
    amortized over the term of the related agreements.

    ACCRUED WARRANTY COSTS - The Company provides by a current charge to income,
    an amount it estimates will be needed to cover future  warranty  obligations
    for products sold.

    CONCENTRATION  OF CREDIT RISK - Accounts  receivable  arise from the sale of
    dental products to dental  professionals  located  throughout the world, but
    principally  in  the  United  States.  The  Company  extends  credit  to its
    customers in the normal  course of business.  The Company  performs  ongoing
    credit  evaluations  of its  customers'  financial  condition  and generally
    requires no collateral from its customers.  The Company's  credit losses are
    subject to general economic  conditions of the dental industry,  among other
    factors.

    INCOME TAXES - Income taxes are provided for the tax effects of transactions
    reported in the financial statements and consist of taxes currently due plus
    deferred  taxes,  if any.  Deferred  taxes  represent the net tax effects of
    temporary differences between the carrying amounts of assets and liabilities
    for  financial  reporting  purposes  and the  amounts  used for  income  tax
    purposes.

    STOCK-BASED  COMPENSATION - Statement of Financial  Accounting Standards No.
    123,  ACCOUNTING  FOR  STOCK-BASED  COMPENSATION  ("SFAS  123")  establishes
    accounting  and  reporting  standards  for  companies  who have  stock-based
    compensation  plans. Those plans include all arrangements by which employees
    and nonemployees  receive shares of stock or other equity instruments of the
    Company.  SFAS 123 defines a fair value  based  method of  accounting  for a
    stock  option or  similar  equity  instrument.  Under the fair  value  based
    method,  compensation  cost is measured at the grant date based on the value
    of the award and is recognized over the service period, which is usually the
    vesting period.  Accounting  Principles Board ("APB") Opinion 25, ACCOUNTING
    FOR STOCK ISSUED TO EMPLOYEES  requires  compensation  cost for  stock-based
    employee  compensation  plans to be recognized  based on the difference,  if
    any,  between the quoted market price of the stock on the grant date and the
    amount an  employee  must pay to  acquire  the  stock.  SFAS 123  permits an
    entity,  in determining its net income,  to continue to apply the accounting
    provisions  of APB  Opinion  25 to  its  stock-based  employee  compensation
    arrangements.  An entity that  continues to apply APB Opinion 25 must comply
    with the  disclosure  requirements  of SFAS 123.  The Company has elected to
    continue to apply the  accounting  provisions  of APB Opinion 25 and related
    interpretations to its employee stock options.

    EARNINGS PER SHARE - Earnings per share of common stock has been computed on
    the  basis  of  the  weighted-average  number  of  shares  of  common  stock
    outstanding.

    In February  1997,  the Financial  Accounting  Standards  Board (the "FASB")
    issued  Statement  No.  128,  EARNINGS  PER  SHARE  ("SFAS  128").  SFAS 128
    establishes  standards  for  computing  and  presenting  earnings  per share
    ("EPS").  The  previous  presentation  of  primary  EPS is  replaced  with a
    presentation  of basic EPS.  Dual  presentation  of basic and diluted EPS is
    required  on the  face of the  income  statement.  A  reconciliation  of the
    numerator and  denominator of the basic EPS computation to the numerator and
    denominator of the diluted EPS computation  must be disclosed as well. Basic
    EPS excludes dilution and is computed by dividing income available to common
    stockholders by the weighted-average number of common shares outstanding for
    the period.  Diluted EPS is computed similarly to fully diluted EPS pursuant
    to APB Opinion No. 15, EARNINGS PER SHARE.  The Company adopted SFAS 128 for
    the year ended October 31, 1998, and prior periods were restated.


                                       -8-
<PAGE>


    IMPACT OF NEW ACCOUNTING STANDARDS - In June 1997, the FASB issued Statement
    No. 130, REPORTING  COMPREHENSIVE  INCOME ("SFAS 130"). SFAS 130 establishes
    standards  for  reporting  and  display  of  comprehensive  income  and  its
    components.  SFAS 130  requires  that all  items  that  are  required  to be
    recognized under accounting  standards as components of comprehensive income
    be  reported  in a  financial  statement  that is  displayed  with  the same
    prominence as other  financial  statements.  The Company will be required to
    classify items of other comprehensive  income by their nature in a financial
    statement and display the accumulated balance of other comprehensive  income
    separately  from retained  earnings and  additional  paid-in  capital in the
    stockholders'  equity section of the balance  sheet.  Also in June 1997, the
    FASB issued Statement No. 131,  DISCLOSURES  ABOUT SEGMENTS OF AN ENTERPRISE
    AND RELATED  INFORMATION  ("SFAS 131"),  establishing  standards for the way
    public  enterprises  report  information about operating segments in interim
    financial reports issued to shareholders.  It also establishes standards for
    related disclosures about products and services, geographic areas, and major
    customers.  SFAS 130 and 131 are effective for fiscal years  beginning after
    December 15, 1997, with reclassification of earlier periods. The adoption of
    SFAS 130 and 131 is not expected to have a material  effect on the Company's
    consolidated financial statements.

    In February 1998, the FASB issued Statement No. 132, EMPLOYERS'  DISCLOSURES
    ABOUT PENSIONS AND OTHER POSTRETIREMENT  BENEFITS ("SFAS 132"), an amendment
    of FASB  Statements  No. 87, 88 and 106. The  statement  revises  employers'
    disclosures about pensions and other  postretirement  benefits.  It does not
    change the measurement or recognition of those plans.  It  standardizes  the
    disclosure  requirements for pensions and other  postretirement  benefits to
    the extent practicable,  requires  additional  information on changes in the
    benefit  obligations  and fair values of plan  assets  that will  facilitate
    financial analysis, and eliminates certain disclosures that are no longer as
    useful as they were when FASB  Statement  Nos.  87, 88, and 106 were issued.
    SFAS 132 suggests  combined  formats for  presentation  of pension and other
    postretirement  benefit disclosures.  SFAS 132 is effective for fiscal years
    beginning  after December 15, 1997. The adoption of SFAS 132 is not expected
    to  have  a  material  effect  on  the  Company's   consolidated   financial
    statements.

    In June 1998, the FASB issued  Statement No. 133,  ACCOUNTING FOR DERIVATIVE
    INSTRUMENTS  AND  HEDGING  ACTIVITIES  ("SFAS  133").  SFAS 133  establishes
    accounting  and reporting  standards for derivative  instruments,  including
    certain  derivative  instruments  embedded in other contracts  (collectively
    referred to as derivatives), and for hedging activities. It requires that an
    entity  recognize all  derivatives  as either assets or  liabilities  in the
    balance  sheet and measure  those  instruments  at fair  value.  SFAS 133 is
    effective for fiscal years beginning after June 15, 1999. The effect of this
    adoption on the Company's financial statement has not been determined.

    RECLASSIFICATIONS  -  Certain  reclassifications  have been made to the 1997
    financial  statements  in order to  conform  with 1998  financial  statement
    presentation.  These reclassifications had no effect on stockholders' equity
    or net income, as previously reported.

2.  RELATED PARTY TRANSACTIONS

    During  1998 and  1997, the  Company had advanced funds to certain officers,
    directors, and employees. The  advances are due on demand. The advances were
    as follows at October 31:


                                                              1998         1997

Employees                                                   $ 20,000    $ 23,000
Officers and directors                                        49,000      47,000
                                                            --------     -------

     Totals                                                 $ 69,000    $ 70,000
                                                            ========    ========

                                      -9-
<PAGE>



    During the years  ended  October 31,  1998 and 1997,  the  Company  provided
    printing services  aggregating $477,000 and $572,000,  respectively,  to its
    affiliates and to other companies controlled by the majority stockholders of
    the  Company.  These  amounts  are  included  in sales  in the  consolidated
    statements  of income.  As of October  31, 1998 and 1997,  these  affiliated
    companies owed the Company $137,000 and $133,000, respectively, reflected as
    accounts receivable-affiliates in the balance sheets.

    During the year ended  October  31,  1997,  the  Company  sold  $340,000  of
    inventory to its affiliates.

    During the years  ended  October 31,  1998 and 1997,  the Company  allocated
    various  operating and payroll  expenses to one of its  affiliates  based on
    related  personnel  costs  and  other  factors.   These  allocated  expenses
    aggregated approximately $193,000 and $241,000, respectively.

    During the years ended October 31, 1998 and 1997,  the Company paid expenses
    of and advanced funds to its affiliates.  During the years ended October 31,
    1998 and 1997,  the  Company  wrote down its  investment  in  affiliates  by
    $57,000  and  $127,000,  respectively,  due to the  probability  that  these
    investments were not recoverable.

3.  INVENTORY

    Inventory consisted of the following at October 31:


                                                   1998              1997

         Finished goods                       $  578,000         $ 589,000
         Work in process                          20,000            13,000
         Raw materials                         2,618,000         2,189,000
                                               ---------         ---------

                     Totals                   $3,216,000        $2,791,000
                                               =========         =========


    During the year ended October 31, 1997, the Company  wrote off approximately
    $208,000 of obsolete raw materials and finished goods which are reflected in
    cost of goods sold in the accompanying consolidated statement of income.

4.  PROPERTY AND EQUIPMENT

    Property and equipment consisted of the following at October 31:

<TABLE>
<CAPTION>



                                                                                                            ESTIMATED
                                                                                                          USEFUL LIVES
                                                                         1998                1997           IN YEARS
                                                                                                          ------------
         <S>                                                              <C>                  <C>            <C>
         Land                                                             $  271,000           $  116,000       -
         Buildings and improvements                                          944,000              780,000     7-39
         Manufacturing equipment                                           2,766,000            2,440,000     3-10
         Vehicles                                                            560,000              561,000       5
         Furniture and equipment                                             922,000              802,000      3-7
         Construction in progress                                             66,000               -
                                                                          ----------           ----------  

                     Total property and equipment                          5,529,000            4,699,000

         Less accumulated depreciation                                    (2,798,000)          (2,205,000)
                                                                         -----------           ----------

                     Property and equipment, net                         $ 2,731,000          $ 2,494,000
                                                                         ===========          ===========
</TABLE>

    Depreciation  expense  was $757,000  and  $632,000  during  1998  and  1997,
respectively.




                                      -10-
<PAGE>


5.  INVESTMENT IN AND ADVANCES TO AFFILIATES

    PERFECTBYTE  LIMITED  PARTNERSHIP -  PerfectByte  Limited  Partnership  (the
    "Partnership")  is owned  by PDT  Byte,  Inc.  ("Byte")  and an  independent
    company (the  "Partner") to develop and market  software for dental practice
    management.  Partnership  profit  is  to be  allocated  based  on  specified
    percentages at certain  profitability  levels, while losses are allocated in
    proportion to capital  account  balances at October 31 of each year.  During
    the years ended October 31, 1998 and 1997, Byte was allocated  substantially
    all of the Partnership  losses totaling  approximately  $12,000 and $55,000,
    respectively.

    The  Partnership  is obligated,  under the  partnership  agreement,  to make
    guaranteed  payments to the Partner.  Payments  have been and are to be made
    based  on total  principal  and  interest  payments  due to a lender  by the
    Partner.  The notes have a principal  balance of  approximately  $154,000 at
    October 31,  1998,  and a fixed  interest  rate of 9.75%.  Such notes mature
    December  19,  2003,  and are  expected by  management  of the Company to be
    refinanced at that time.

    The Partner may negotiate  new terms at or near maturity  which could modify
    the  payment  due  dates.  If such  modifications  occur,  the timing of the
    Partnership's  payments of its guaranteed payment  obligations could also be
    changed.  The  Company has  guaranteed  Byte's  obligation  to the extent of
    one-half of the principal and interest  payments  which become due under the
    existing debt.

    The following is a summary of the condensed  financial  position and results
    of operations for the  Partnership  for the years ended October 31, 1998 and
    1997.

<TABLE>
<CAPTION>


                                                                                   1998             1997
         <S>                                                                   <C>               <C>

         Total assets                                                          $     3,000       $   5,000
                                                                               ===========     ===========

         Current and total liabilities (substantially all to the Company)      $ 1,405,000     $ 1,335,000
         Owners' deficit                                                        (1,402,000)     (1,330,000)
                                                                              ------------     -----------

         Total liabilities and owners' deficit                                 $     3,000       $   5,000
                                                                               ===========    ============
         Sales                                                                 $   205,000      $  262,000
                                                                              ============    ============
         Net loss                                                              $  (12,000)     $  (55,000)
                                                                              ============    ============
</TABLE>

    The  Company  had  ownership  interests  for  several  years  in  a  general
    partnership known as Pro-Dentec Canada (the "Venture") which was involved in
    distribution  of the  Company's  products  in Canada.  During the year ended
    October 31,  1997,  the  partnership  was  terminated  following  litigation
    between  the  partners.  Losses  during the year  ended  October  31,  1997,
    incurred through the Venture's termination, totaled $89,000; and the Company
    wrote off the  remaining  balance of its  investment  in the Venture,  which
    totaled  $59,000.  Net sales were $604,000 for the period from the beginning
    of fiscal year 1997 to the  termination  of the Venture  (approximately  six
    months).  After the  termination  of the  Venture,  net sales in Canada were
    included in the  consolidated  statements of income and totaled $439,000 for
    the remainder of 1997.

6.  LINE OF CREDIT

    At  October  31,  1998 and 1997,  the  Company  had  outstanding  short-term
    borrowings  of $865,000 and $390,000,  respectively,  under  available  bank
    lines of credit  aggregating  $3,000,000.  The unused portion of the line of
    credit at October 31, 1998 was $2,135,000. Interest is charged at a variable
    rate based on lender prime plus 1.5% (9.5% at October 31, 1998).  Borrowings
    are  collateralized  by  receivables  and  inventory  and guaranteed  by the


                                      -11-
<PAGE>


    Company's subsidiaries. The line of credit is subject to certain restrictive
    covenants, including maintaining tangible net worth (as defined) of at least
    $2,000,000.  The line of  credit  has a term of  three  years  and  shall be
    automatically   renewed  unless  terminated  under  the  provisions  of  the
    agreement. The term of this line of credit began in May 1997.

7.  LONG-TERM DEBT

    Long-term debt consisted of the following at October 31:

<TABLE>
<CAPTION>


                                                                                           1998          1997
<S>                                                                                        <C>           <C>

         Mortgage payable - collateralized  by land and building with a carrying
           value at October 31, 1998,  of $349,000;  interest at 8.25%;  monthly
           payments of principal and interest aggregating $2,297,
           with a balloon payment of $104,000 at maturity, March, 1999.                   $ 110,000     $128,000

         Mortgage payable - collateralized  by land and building with a carrying
           value at October 31, 1998,  of $321,000;  interest at 8.25%;  monthly
           payments of principal and interest aggregating $2,148, with a balloon
           payment of $165,000 at maturity, April, 2000.                                    180,000      190,000

         Mortgage payable - collateralized  by land and building with a carrying
            value at October 31, 1998, of $243,000; interest at 8.75%;
           monthly payments of principal and interest aggregating $1,849,
           with a balloon payment of $165,000 at maturity, March, 1999.                     168,000      175,000

         Mortgage payable - collateralized  by land and building with a carrying
            value at October 31, 1998, of $144,000; interest at 7.75%;
           monthly payments of principal and interest aggregating $1,354,
           with a balloon payment of $128,000 at maturity, August, 2001.                    143,000        -
                                                                                            
         Mortgage  payable -  collateralized  by land with a  carrying  value at
           October 31, 1998, of $155,000;  interest at 7.5%; no monthly payments
           of principal and interest, with a balloon payment of
           principal and interest of $162,000 at maturity, June, 1999.                      155,000        -

         Notes payable -  collateralized  by equipment  with a carrying value at
           October 31, 1998, of $150,000;  interest at 7.0%;  monthly  principal
           and interest payments of $3,069 maturing at March, 1999.                          15,000       50,000

         Notes payable -  collateralized  by equipment  with a carrying value at
           October 31, 1998, of $367,000;  interest at 8.25%;  monthly principal
           and interest payments aggregating $6,935,
           with a balloon payment of $153,000 at maturity, November, 1999.                  226,000      288,000

         Notes payable -  collateralized  by equipment  with a carrying value at
           October 31, 1998, of $227,000;  interest at 7.5%;  monthly  principal
           and interest payments of $4,530 maturing
           at October, 2003.                                                                226,000        -

         Notes payable -  collateralized  by vehicles  with a carrying  value at
           October 31,  1998,  of  $257,000;  interest  ranging from 8% - 13.3%;
           aggregate  monthly  principal  and interest  payments of $5,937,  and
           maturity dates ranging from February, 1999 to
           October, 2001.                                                                    73,000      130,000
                                                                                         ----------    ---------
                                                                                          1,296,000      961,000
         Less current portion                                                               461,000      206,000

                     Long-term debt, net of current portion                              $  835,000    $ 755,000
                                                                                         ==========    =========

</TABLE>


                                      -12-
<PAGE>


    The debt matures as follows for the years ending October 31:


          1999                                               $  461,000
          2000                                                  313,000
          2001                                                  273,000
          2002                                                  197,000
          2003                                                   52,000
                                                              ---------
                                                             $1,296,000

    At October 31, 1998,  $165,000 of long-term debt which was to mature in 1999
    is expected to be refinanced  during the year ending October 31, 1999.  Such
    debt is  expected  to be  refinanced  for  three  years at their  respective
    maturity dates. The debt has been reported as having the refinanced maturity
    dates.

8.  CAPITAL LEASE OBLIGATIONS

    The Company leases certain equipment and software under capital leases. Cost
    and accumulated  depreciation of assets under capital leases were as follows
    at October 31:


                                                           1998             1997

         Equipment and software                           $923,000      $823,000
         Less accumulated depreciation                     455,000       236,000
                                                         ---------     ---------
                     Equipment and software, net          $468,000      $587,000
                                                         =========     =========

    The future  minimum lease  payments  under the capital leases are as follows
    for the years ending October 31:


          1999                                                         $ 251,000
          2000                                                           242,000
          2001                                                           142,000
          2002                                                            18,000
          2003                                                             5,000
                                                                      ----------
             Total minimum lease payments                                658,000

          Less amount representing interest                               83,000
                                                                      ----------
             Present value of net minimum lease payment                  575,000
          Less current portion                                           209,000
                                                                      ----------

             Capital lease obligations, net of current portion        $  366,000
                                                                      ==========


9.  INCOME TAXES

    The  provision  for income  taxes for the years  ended  October 31, 1998 and
    1997, consists of the following:


          Current expense                                  $ 900,000   $ 312,000
          Deferred benefit                                  (116,000)   (19,000)
                                                            --------    --------
               Total                                       $ 784,000   $ 293,000
                                                            ========    ========
                                      -13-
<PAGE>



    A reconciliation  of the federal  statutory income tax rate to the Company's
    effective tax rate is as follows:

<TABLE>
<CAPTION>


                                                             1998                               1997
                                                            AMOUNT           %                 AMOUNT           %
                                                       ------------------------------     ------------------------------
<S>                                                    <C>                     <C>        <C>                 <C>
         Tax expense at maximum statutory rate                 $681,000       34.0 %              $257,000       34.0 %
         State tax, net of federal benefit                      114,000        5.7                  43,000        5.7
         Other                                                  (11,000)      (0.6)                 (7,000)      (0.9)
                                                       -----------------   ---------      -----------------    --------- 
                     Income tax provision                      $784,000       39.1 %              $293,000       38.8 %
                                                       =================   =========      =================    =========
</TABLE>


    The net deferred tax asset consisted of the following at October 31:



      The net deferred tax asset consisted of the following at October 31:

                                                         1998          1997

         Deferred tax assets:
           Investment in affiliates                      $134,000     $112,000
           Compensation                                    96,000       74,000
           Warranties                                      75,000       45,000
           Intangibles                                     48,000       38,000
           Allowance for doubtful accounts                 30,000       23,000
           Depreciation                                    24,000  
                                                                           -
           Other                                           29,000        5,000
                                                         --------     --------

                                                          436,000      297,000
         Deferred tax liability:
           Guaranteed payments of joint venture           103,000       80,000
                                                        ---------     --------
           Net deferred tax asset                         333,000      217,000
           Current portion                                211,000      138,000
                                                        ---------     --------

               Net deferred tax asset - non-current      $122,000     $ 79,000
                                                        =========     ========


10. COMMITMENTS AND CONTINGENCIES

    SETTLEMENT  OF LEGAL  PROCEEDINGS  - During the year ended October 31, 1998,
    the Company settled a lawsuit  involving PDT Image, Inc. and its partnership
    with  Source-1  Dental  Image,  Inc. in Pro-Dentec  Canada.  The  settlement
    provided  that the Company  receive  $750,000  and  release its  proprietary
    interests in certain  software.  The $750,000 is included,  net of legal and
    other directly  related costs, in  miscellaneous  income in the statement of
    income for the year ended  October  31,  1998.  The  release of  proprietary
    interests  in the  software  is not  considered  by  management  to have any
    significant  effect  on the  Company's  financial  position  or  results  of
    operations.

    OPERATING LEASES - The Company leases warehouse space and various  equipment
    under non-cancelable  operating leases. Future minimum lease payments are as
    follows:

          Year ending October 31:
          1999                                         $  56,000
          2000                                            55,000
          2001                                            41,000
                                                       ---------
                                                       $ 152,000
                                                       =========


    The total rent expense was $143,000 and $126,000 for the years ended October
    31, 1998 and 1997, respectively.

                                      -14-


<PAGE>


    LICENSING  AGREEMENT - The Company has a licensing  agreement with a foreign
    company which owns the  manufacturing  and  distribution  rights to a rotary
    hygiene  device,  known as Rota-dent.  The agreement  contains the following
    major provisions:

         1) The Company holds the worldwide rights to manufacture and distribute
            the Rota-dent in perpetuity  except for the right to distribute  the
            Rota-dent in Sweden,  which was granted back to the foreign  company
            (subject to cancellation by either party on 90 days notice).

         2) The  Company  was  assigned  all   patents  and  trademarks  of  the
            Rota-dent.

         3) The Company  is to pay a royalty of $3.00 to the foreign company for
            each  Rota-dent  sold until an aggregate of  $5,000,000 in royalties
            has been paid.  This  aggregate  was  reached  during the year ended
            October 31, 1998.  Royalty  payments are now $1.50 per unit until an
            additional $3,000,000 in royalties have been paid, at which time the
            royalties  will cease.  During the years ended  October 31, 1998 and
            1997,  the Company  incurred  royalties  of $435,000  and  $602,000,
            respectively,  and through October 31, 1998, has incurred  aggregate
            royalties of approximately $5,213,000.

    In addition,  the Company has certain other licensing  agreements related to
    its  distribution of various other dental  products.  During the years ended
    October  31,  1998 and 1997,  the  Company  incurred  royalties  under these
    licensing agreements totaling $117,000 and $115,000, respectively.

    BUSINESS VENTURE  AGREEMENTS - The Company has a business venture  agreement
    with  Advanced  Clinical  Technologies,   Inc.  ("ACTech"),   a  third-party
    developer of certain dental products produced by the Company's  wholly-owned
    subsidiary,  Professional Dental Technologies  Therapeutics,  Inc. ("PDTT").
    Pursuant  to  the   agreement,   ACTech  was  paid   $48,000  and   $96,000,
    respectively,  during  the  years  ended  October  31,  1998  and  1997  for
    consulting services provided. In addition, ACTech earned and was paid profit
    allocation  equivalent to 25% of PDTT's net profit, as defined,  aggregating
    $323,000  and  $180,000  for the  years  ended  October  31,  1998 and 1997,
    respectively.

    The  Company  has also  entered  into a rolling  five  year  term  agreement
    commencing on December 5, 1995, with Aztec Developments,  Ltd. ("Aztec"), an
    independent  company,  to  manufacture  and distribute  certain  proprietary
    periodontal dental products. In addition to contributing their manufacturing
    and  sales  expertise,  the  Company  has  committed  to invest in the final
    development  of the products and  required  tooling,  and to invest at least
    $300,000 in the  marketing and selling of the products over a two year term.
    As of October 31, 1998, the Company has invested  $60,000 in equipment costs
    related to this  agreement,  which are included in property and equipment in
    the  consolidated  balance  sheets.  Aztec  has  agreed  to  contribute  the
    completed  design of the products and a license to manufacture  the products
    under the  patents  now in  force.  Aztec  has the  right to  terminate  the
    agreement  if the  business  volume does not exceed an  agreed-upon  minimum
    during the initial two years.

    The agreement  stipulates fixed amounts payable to the Company and Aztec for
    items sold, after which, all profits, as defined in the agreement, are to be
    allocated  equally between the Company and Aztec. As of October 31, 1998, no
    sales of the related proprietary periodontal dental products have occurred.

    PURCHASE  COMMITMENTS  - As of  October  31,  1998,  the  Company  had total
    purchase commitments outstanding aggregating approximately $2,129,000.

    SIGNIFICANT  VENDORS - During the year ended  October 31, 1998,  the Company
    made purchases from one supplier which aggregated $683,000.



                                      -15-
<PAGE>


    PRODUCT SALES CONCENTRATION - Sales of the Company's Rota-dent and accessory
    products represented  approximately 64% of total revenues for the year ended
    October 31, 1998.

11. EMPLOYEE BENEFIT PLANS

    401(K) RETIREMENT  SAVINGS PLAN - The Company has a 401(k) plan available to
    all employees meeting certain service  requirements.  Eligible employees may
    contribute up to 15% of their annual salary to the plan,  subject to certain
    limitations.  The Company may provide  profit-sharing  contributions  at the
    discretion of its board of directors.  Employees  become fully vested in the
    Company  contributions  after five years of  service.  There were no Company
    contributions for the years ended October 31, 1998 or 1997.

    INCENTIVE STOCK OPTION PLAN - The Company has an incentive stock option plan
    for the benefit of its key personnel. The maximum number of shares of common
    stock  reserved for issuance  under the Plan is 5,000,000  shares,  provided
    that in no event shall more than 10% of the Company's then outstanding stock
    be optioned under the Plan in any single year.

    The Board of Directors may grant options to key individuals at any time. The
    purchase  price for stock  under the plan  shall be 100% of the fair  market
    value of the stock at the time the option is  granted,  but in no event less
    than par value of the stock.  Options  granted expire 10 years from the date
    they are  granted.  As of October 31, 1998 and 1997,  options to purchase an
    aggregate of 1,296,000 and  1,271,500  shares of stock,  respectively,  were
    outstanding  at prices  ranging  from  $0.5625  to $3.00.  The  options  are
    generally subject to the option holder's continued employment or services to
    the Company. Certain options contain vesting requirements.

    A summary of the status of the Company's stock option plan as of October 31,
    1998 and 1997,  and  changes  during  the years  ended on those  dates is as
    follows:

<TABLE>
<CAPTION>

                                                                                                            WEIGHTED
                                                                 NUMBER               OPTION                AVERAGE
                                                                   OF                 PRICE               OPTION PRICE
                                                                 SHARES             PER SHARE              PER SHARE

<S>                                                              <C>            <C>                      <C>

         Options outstanding at October 31, 1996              748,500      $0.5625 - $3.00                $ 1.71
           Granted                                            655,500      $1.50 -    2.75                $ 0.61
           Forfeited                                         (133,000)     $0.5625 - $3.00                $ 2.31
                                                           ----------

         Options outstanding at October 31, 1997            1,271,000      $0.5625 - $3.00                $ 1.12
           Granted                                             25,000      $0.875                         $ 0.88
                                                           ----------

         Options outstanding at October 31, 1998            1,296,000      $0.5625 - $3.00                $ 1.11
                                                           ==========

         Options exercisable at October 31, 1998              635,000      $0.5625 - $2.375               $ 1.38
                                                           ==========

</TABLE>


                                      -16-
<PAGE>


    The following table summarizes information about stock options at October
31, 1998:

<TABLE>
<CAPTION>



                                                                       WEIGHTED                              WEIGHTED
                                                    WEIGHTED            AVERAGE                               AVERAGE
                                                     AVERAGE           EXERCISE                              EXERCISE
             RANGE OF            NUMBER             REMAINING          PRICE OF            NUMBER            PRICE OF
             EXERCISE          OUTSTANDING AT      CONTRACTUAL        OUTSTANDING      EXERCISABLE AT       EXERCISABLE
              PRICES          OCTOBER 31, 1998        LIFE              OPTIONS         OCTOBER 31, 1998      OPTIONS
         <S>                         <C>               <C>                <C>                  <C>
         $1.25                       100,000            1                $ 1.25                100,000            $ 1.25
         $1.00 - 1.75                 36,000            2                $ 1.47                                   $ 1.47
                                                                                                36,000
         $1.50                       200,000            4                $ 1.50                200,000            $ 1.50
         $2.375                       60,000            5                $ 2.38                                   $ 2.38
                                                                                                60,000
         $2.00 - 2.50                167,500            6                $ 2.01                                   $ 2.00
                                                                                                72,500
         $1.5625 - 2.00               27,000            7                $ 1.76                     -                  -
         $0.8125                      25,000            8                $ 0.81                                   $ 0.81
                                                                                                25,000
         $0.5625 - 3.00              655,500            9                $ 0.61                116,500            $ 0.56
         $0.875                       25,000           10                $ 0.88                 25,000            $ 0.88

</TABLE>

    The Company  applies  APB 25 in  accounting  for its stock  option and award
    plan.  Under the terms of the plan,  the  exercise  price for each option is
    equal to the market price of the  Company's  stock on the date of the grant.
    Accordingly,  no compensation  expense has been recognized  under this plan.
    Net income and earnings per share on a proforma basis, as if the Company had
    utilized the accounting  methodology  prescribed by SFAS 123 would have been
    as follows (in thousands, except per share data):


                                                     YEARS ENDED OCTOBER 31,
                                               ---------------------------------
                                                        1998          1997

        Net income:                                                        
          As reported                                $ 1,220          $ 463
          Pro forma                                    1,180            431

        Basic earnings per share:                                          
          As reported                                $ 0.09           $ 0.03
          Pro forma                                    0.08             0.03

        Diluted earnings per share:                                        
          As reported                                $ 0.09           $ 0.03
          Pro forma                                    0.08             0.03


    The estimated fair value of options  granted during 1998 and 1997 was $.6375
    and $.3480 per share,  respectively.  For purposes of determining fair value
    of each option, the Company used the Black-Scholes  model with the following
    assumptions:

                                                            1998         1997
         Risk-free interest rate                             5.46 %      5.84 %
         Expected life                                10 years       10 years
         Expected volatility                                   57 %        42 %



                                      -17-
<PAGE>



    NON  QUALIFIED  OPTIONS - The Company has issued  options to a consultant to
    purchase  100,000 shares of common stock at $1.00 per share. The options are
    exercisable  immediately  and expire on December 31, 1998. As of October 31,
    1998,  these  options have not been  exercised.  In  conjunction  with these
    options, the Company has recognized $25,000 of compensation expense for each
    of the years ended October 31, 1998 and 1997.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

    The  following   disclosure  of  the  estimated   fair  value  of  financial
    instruments  is made in accordance  with the  requirements  of SFAS No. 107,
    DISCLOSURES  ABOUT FAIR VALUE OF FINANCIAL  INSTRUMENTS.  The estimated fair
    value amounts have been  determined by the Company  using  available  market
    information and appropriate valuation methodologies and are as follows:
<TABLE>
<CAPTION>


                                                  1998              1998                    1997             1997
                                                CARRYING          ESTIMATED               CARRYING         ESTIMATED
                                                 AMOUNT          FAIR VALUE                AMOUNT         FAIR VALUE
                                            ------------------------------------      ----------------------------------
         <S>                                       <C>               <C>                     <C>             <C>
         Assets:
           Cash and cash equivalents               $1,735,000        $1,735,000              $1,267,000      $1,267,000
           Certificates of deposit                     98,000            98,000                 -               -
           Accounts receivable:                                                                          
             Trade                                  2,444,000         2,444,000               1,741,000       1,741,000
             Affiliates                               137,000           137,000                 133,000         133,000

         Liabilities:                                                                                    
           Notes payable - line of credit             865,000           865,000                 390,000         390,000
           Accounts payable - trade                 1,045,000         1,045,000               1,135,000       1,135,000
           Long-term debt                           1,296,000         1,263,000                 961,000         938,000
           Commitments                              -                 -                        -               -
</TABLE>

    The following  methods and assumptions  were used by the Company to estimate
    the fair value of each class of financial instruments.

    The carrying amounts of cash and cash equivalents,  certificates of deposit,
    accounts  receivable,  and accounts  payable - approximate fair value due to
    the short maturity of these items.  The carrying amount of the notes payable
    - line of credit  approximates  fair value because the interest rate on this
    instrument  changes  with  market  interest  rates.  The  fair  value of the
    Company's  long-term debt (including current  maturities) is estimated based
    on interest rates available to the Company for issuance of similar debt with
    similar terms and remaining maturities.

13. EARNINGS PER SHARE

                                                        1998            1997
                                                           (IN THOUSANDS)

         Basic EPS weighted average shares                  14,100        14,100
         Add dilutive effect of unexercised options             48            21
                                                            ------        ------
         Diluted EPS weighted average shares                14,148        14,121
                                                            ======        ======




                                        * * * * * *

                                      -18-