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, 1997                                               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 ]


<PAGE>



      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 12, 1998, was $3.1 million.

      The registrant's revenue for fiscal 1997 was $23.8 million.

      As of  January  16,  1998,  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 TRADEMARK]

      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
Lexan[TRADEMARK] water-resistant power handle that accepts interchangeable heads
and 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  two   interchangeable   heads  so  that  different  persons  can
economically and hygienically use the same power handle. Replacement


                                      -1-
<PAGE>



interchangeable  heads and brush tips are available  through  dental offices and
from the Company's Customer Service department by telephone.

      Each  of  the  patented   interchangeable   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.

      The  Company  relies  upon  numerous   university  clinical  trials,  some
sponsored  by Company  grants  and  others  sponsored  by major  dental  product
companies, to demonstrate to the dental profession that the Rota-dent product is
an effective plaque removal  instrument.  Based on these studies,  the Rota-dent
product  was  awarded  the  American  Dental  Association's  Council  on  Dental
Materials, Instruments and Equipment Seal of Acceptance as an effective cleaning
instrument,  which significantly reduces both plaque and gingivitis when used as
part of a program for good oral hygiene and regular  professional care. In 1996,
the Company voluntarily relinquished the ADA Seal for the Rota-dent. This action
was taken as a result of the overly  restrictive  and burdensome  administrative
requirements  which the ADA sought to impose upon the Company's  advertising and
promotion  of the  Rota-dent  product,  compliance  with which would have been a
condition of retaining the ADA Seal.



                                      -2-
<PAGE>



      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
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 1997,
sales  of  the  Rota-dent  and   associated   accessory   products   represented
approximately 71% 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


                                      -3-
<PAGE>




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. (See ITEM 3. LEGAL PROCEEDINGS).

      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 1997
fiscal year, sales of scalers and scaler accessories accounted for approximately
12% 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,


                                      -4-
<PAGE>



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 1997 fiscal
year,  dental  pharmaceutical  products  accounted for  approximately  9% of the
Company's revenue.

               VICTOR[REGISTERED TRADEMARK] 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


                                      -5-
<PAGE>



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(R)  to dental
offices  for  several  years.   The  partnership   subsequently   completed  the
development  of a new  practice  management  program  which  utilizes  Microsoft
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, is currently 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.  (See ITEM 3.
LEGAL  PROCEEDINGS).  For this  reason,  and  pending  final  resolution  of the
litigation, Victor Image is no longer being promoted by the Company, and is sold
only upon the specific request of a customer.

      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.

                                 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



                                      -6-
<PAGE>


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  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. Each
Rota-dent kit contains a package of Rota-points, which are sold individually.

                        PERIOCHECK[REGISTERED TRADEMARK]

      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.

      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  $490,000 of product  development  expense in 1997 as
compared  to  $705,000  in 1996.  The  decrease  was  primarily  as a result  of



                                      -7-
<PAGE>



completing the development of the Pro-Select-3 scaler early in 1997. 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 of 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  1998.  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 1997.

      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 in 1997,  the  Company  has  also  sought  commercial  printing
business, and now runs the printing company as a profit center.


                                      -8-
<PAGE>




                                  FOREIGN SALES

      The  Company  began  exporting  its  products  in 1991.  Sales to  foreign
distributors represented  approximately 7% of the Company's total sales in 1997.
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)
Foreign sales for 1997 were therefore higher by approximately  $0.4 million than
they  would  have  been  had  Canadian  sales  continued  to  be  reported  on a
partnership  basis.  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.

                           "YEAR 2000" COMPUTER ISSUE

      The Company has  completed  an  examination  of all  software  used in its
internal  management and accounting systems, as well as of the software which it
sells to its customers,  and has determined that there are no material risks and
uncertainties  related to the "Year  2000"  computer  issue.  In  assessing  its
reliance on external  computer  systems,  primarily  those of its  customers and
vendors,  the Company also believes that it has no material  exposure to risk or
uncertainty. (The Company makes no significant sales to any governmental agency,
foreign or domestic.)

                                   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 will 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.


                                      -9-
<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(R) 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.

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.


                                      -10-
<PAGE>



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.

                                    EMPLOYEES

      As of December 31, 1997, the Company  employed 332 persons  full-time,  of
whom 161 worked in manufacturing,  126 in sales and marketing,  with the balance


                                      -11-
<PAGE>



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 three  buildings  in  Batesville,  Arkansas  containing a
total of 49,000 square feet of  administration,  warehouse and production space.
The building on Harrison Street houses the Company's  production  facilities for
the Rota-dent product and other products, spaces devoted to product development,
purchasing and an audiovisual production studio. The Company also owns ten acres
of land and a masonry  building  which has been  modified  for use as a printing
facility  and for the  production  of its  dental  pharmaceutical  products.  An
addition to this  facility  was  completed  in 1996.  The  building  housing the
Company's executive offices as well as its marketing,  professional  consulting,
accounting  and  administrative  staffs was purchased in 1994.  The building had
been leased and used for the same purpose prior to the purchase. The Company has
outstanding  mortgages on the buildings totaling $493,000.  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 leases space in three 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 three renewal terms  remaining.  Another  building is used as a woodworking
facility for  construction of computer system and intraoral camera 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  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


                                      -12-
<PAGE>



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. This suit
is pending.

      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.

      While the Company intends to vigorously assert its rights, there can be no
assurance  that PDT Image  will be able to  collect  any or all of the  judgment
amount from SDI and/or its principal officers,  or that there will be a positive
outcome to the litigation involving Chasanoff and Raster Builders.

      On April  24,  1997,  the  Company  and  it's  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 concerns 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  claims it is entitled to the face  amount of the  promissory  note,
minimum   royalties  it  claims  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 seeks an injunction based on a non-compete agreement
that allegedly  prohibits the Company from producing  ultrasonic  dental scalers
similar to Lysta's.

      The Company and PDT  Production  maintain  they have no  obligation to pay
royalties,  including those payable pursuant to the promissory note,  because no
consideration  was given  under the  license  agreement  and because the license
agreement is void as an unreasonable restraint of trade. Likewise, they maintain
no injunction  should issue to prohibit their current  manufacture of ultrasonic
dental scalers.  In addition,  the Company and PDT Production deny they detained


                                      -13-
<PAGE>



or damaged equipment used to manufacture ultrasonic dental scalers and therefore
deny Lysta is  entitled  to damages  for  alleged  detention  and damage to that
equipment.  Finally, the Company and PDT Production maintain that any obligation
for royalties terminated on the date PDT Production purchased Lyco's partnership
interest and that no royalties  were payable  after that date under the terms of
the license agreement.

      The  Company  and PDT  Production  believe the claims of Lysta are without
merit and will  vigorously  defend the suit.  The parties have filed motions for
partial summary  judgment  concerning  various issues involved in the case which
are currently  pending.  The case is currently set for trial on April 6, 1998 in
the United States District Court for the Eastern District of Arkansas.

      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
Company and its attorneys  believe the claims of the former employee are without
merit, and will vigorously  defend the suit. At the present time, the suit is in
the discovery stage.

      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.




















                                      -14-
<PAGE>



                                     PART II

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

      As of  December  31,  1997,  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, 1996               1 1/8                  13/16
      April 30, 1996                 1 1/4                  7/8
      July 31, 1996                  1 1/4                  13/16
      October 31, 1996                 7/8                  3/4
      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


      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 1997 AND 1996

                              RESULTS OF OPERATIONS

      For fiscal  year 1997,  net sales  totaled  $23.8  million,  a 9% increase
compared to net sales of $21.8  million in 1996.  The increase can be attributed
to higher  sales of the  Rota-dent  and  accessories,  the  scaler,  and  dental
pharmaceuticals,  and a 6% price increase on the Rota-dent, in effect throughout
fiscal 1997. Approximately $0.4 million of the increase can be attributed to the
net impact of consolidating  Canadian sales revenue with that of the Company for


                                      -15-
<PAGE>



the final six months of 1997,  due to the  recission  of the  Pro-Dentec  Canada
partnership.  These  increases were  partially  offset by a decrease in sales of
computer systems and software.

      The  Company's   revenues  for  both  1997  and  1996  were  substantially
attributable to sales of Rota-dents and associated accessory products. In fiscal
years  1997  and  1996,  revenue  from the sale of  Rota-dents  and  accessories
amounted to approximately $17.1 million and $16.7 million,  respectively.  Sales
revenues from equipment  (scalers,  computer  systems and software)  amounted to
$3.6 million for 1997 and $3.0  million in 1996.  Sales of  pharmaceuticals  and
other products and services were $3.1 million in 1997 and $2.1 million in 1996.

      The cost of goods  sold in  fiscal  1997 was $9.4  million,  and in fiscal
1996,  $9.2 million.  As a percentage of sales,  cost of goods sold was 39.6% in
1997  compared  to 42.4%  in  1996.  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 a price increase of the Rota-dent unit,
which  was  effective  for all of 1997,  compared  to only two  months  of 1996.
Included in 1997 cost of goods sold is a writeoff of  approximately  $208,000 of
obsolete  intraoral  camera  inventory.  There was a $213,000  writeoff  of such
inventory in 1996.  After the 1997 writeoff,  no inventory  associated  with the
intraoral camera remains on the balance sheet.

      Operating expense (selling, general & administrative,  product development
and  royalties)  was $13.2  million in 1997  compared to $11.2 million in fiscal
1996. The increase in operating  expense is attributable  to increased  selling,
general and  administrative  (G&A) expenses in 1997,  partially  offset by lower
product  development  costs.  Selling  expenses  increased  as a  result  of  an
approximate  30%  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
decreased as a result of the completion of the  development of the  Pro-Select-3
scaler early in the year.

      Other  income and expense  netted to an expense of $485,000 in fiscal 1997
compared to a net expense of $931,000 in fiscal 1996.  This  category of expense
is primarily  composed of the Company's  pro-rata share of the operating  profit
and loss of its non-consolidated equity affiliates and interest  income/expense.
The 1997 amount reflects lower joint venture losses  partially  offset by higher
interest expense than that incurred in 1996.

      The Company had ownership  interests  for several years in the  Pro-Dentec
Canada Partnership,  which distributed the Company's products in Canada.  During
1997, the partnership was rescinded following  litigation by the partners.  (See
ITEM 3.  LEGAL  PROCEEDINGS.)  Losses  in 1997 to the date of the  partnership's
recission  were  $89,000;  the  Company  also then wrote off the  balance of its
investment,  totaling  $59,000.  For all of 1996,  the  Company's  allocation of
partnership losses was $190,000. After recission, net sales in Canada, which are
included in the consolidated statement of income, totaled $439,000.

      The Company's net income in fiscal 1997 was $463,000,  which  represents a
79% increase from net income of $258,000 in fiscal 1996. The  improvement in net
income resulted  primarily from higher gross profit margins on products sold and
lower operating losses in the joint venture affiliates, as detailed above.


                                      -16-
<PAGE>



                         CAPITAL RESOURCES AND LIQUIDITY

      As of fiscal year end 1997,  the Company had total  assets of $9.0 million
compared to $8.0 million in 1996.  Total  liabilities  were $4.4 million in 1997
compared to $3.9  million in 1996.  The  increase in assets  primarily  reflects
additional  investment in fixed assets during 1997, and higher trade receivables
and inventory  resulting from increased 1997 sales levels.  At October 31, 1997,
stockholders'  equity had  improved to $4.6 million from $4.1 million at the end
of the previous year. The current ratio  increased  slightly from 1.9 in 1996 to
2.0 in 1997.

      Total  short  term  indebtedness  (draws  on line of credit  plus  current
portion of long term debt and  capital  leases)  was $0.8  million at the end of
1997  compared to $0.9 million in 1996.  Long term debt was $1.3 million at 1997
year-end, compared to $1.0 million in 1996. The Company believes that it will be
able to retire this debt from future cash flows from operations.

      During fiscal years 1997 and 1996,  net cash  provided from  operations of
$1.1 million and $1.4  million,  was  primarily  used to increase  investment in
capital items,  including  manufacturing  space and  manufacturing  and computer
equipment,  to retire  debt,  and in 1997,  to increase the  Company's  net cash
position.

      The  Company  currently  pays 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. Under the terms of this agreement, the per unit royalty decreases
to $1.50 after an  aggregate  of $5 million of  royalties  have been paid.  This
royalty reduction is expected to occur in March or April of 1998.

      In October 1994,  the Company signed an agreement to enter into a business
relationship with Aztec Developments Ltd., a British company.  During 1995, 1996
and 1997,  Aztec and the  Company  worked to  develop an  automated  periodontal
probe.  The Company expects to bring this product to market in 1998.  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 $300,000 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.


                                      -17-
<PAGE>



      The Company has  completed  an  examination  of all  software  used in its
internal  management and accounting systems, as well as of the software which it
sells to its customers,  and has determined that there are no material risks and
uncertainties  related to the "Year  2000"  computer  issue.  In  assessing  its
reliance on external  computer  systems,  primarily  those of its  customers and
vendors,  the Company also believes that it has no material  exposure to risk or
uncertainty. (The Company makes no significant sales to any governmental agency,
foreign or domestic.)

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

      On June 5, 1997,  the Audit  Committee  and the full Board of Directors of
the Company  unanimously agreed to replace Silverman Olson Thorvilson & Kaufmann
LTD ("SOTK") as the Company's independent auditor.

      None of the reports of SOTK on the financial statements of the Company for
either of the past two fiscal years contained an adverse opinion or a disclaimer
of opinion,  or was  qualified  or modified  as to  uncertainty,  audit scope or
accounting principles. During the Company's two most recent fiscal years and the
subsequent  interim  period  preceding the  replacement  of SOTK,  there were no
disagreement(s)  with SOTK on any matter of accounting  principles or practices,
financial   statement   disclosure  or  auditing  scope  or  procedures,   which
disagreement(s),  if not resolved to the satisfaction of SOTK, would have caused
it to make reference to the subject matter of the  disagreement(s) in connection
with its report.  None of the reportable  events listed in Item  304(a)(1)(v) of
Regulation  S-K occurred  with respect to the Company  during the Company's two
most  recent  fiscal  years and the  subsequent  interim  period  preceding  the
replacement of SOTK.

      On June 20,  1997,  the  Company  engaged  Deloitte  &  Touche  LLP as its
independent  auditor.  During the Company's two most recent fiscal years and the
subsequent interim period preceding the engagement of Deloitte & Touche, neither
the Company nor anyone on its behalf  consulted  Deloitte & Touche regarding the
application  of accounting  principles to a specific  completed or  contemplated
transaction,  or the  type of  audit  opinion  that  might  be  rendered  on the
Company's  financial  statements,  and no written or oral advice concerning same
was  provided to the Company  that was an  important  factor  considered  by the
Company in  reaching a decision  as to any  accounting,  auditing  or  financial
reporting issues.




















                                      -18-
<PAGE>


                                    PART III


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

      The directors and executive officers of the Company are as follows:
          
                            AGE AT    TERM EXPIRES
 NAME                       1/1/98    AS DIRECTOR          POSITION
 ----                       ------    -----------          --------

William T. Evans              55            1998      Director, President and
Chief Executive Officer

Robert E. Christian           36            1998      Director, Executive Vice
                                                      President, Secretary and
                                                      Treasurer

Frank H. Newton, III          57                      Chief Operating Officer

Richard L. Land               52                      Vice President, Controller

J. Robert Lemon               55            1998      Director

Timothy A. Nolan              44            1998      Director

J. Philip Boesel              65            1998      Director

Michael S. Black              46            1998      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.

      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


                                      -19-
<PAGE>


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
has been the First Vice President,  Investment  Banking of Kirkpatrick,  Pettis,
Smith, Polian, Inc. since 1991.  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 Dealers Lumber Company and  Continental
Travel  Associates.  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.

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, 1997.













                                      -20-
<PAGE>



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

William T. Evans          1997   $140,000      -0-       -0-            -0-
President                 1996    140,000      -0-       -0-            -0-
                          1995    140,000      -0-       -0-            -0-

Frank H. Newton, III      1997   $125,000      -0-       -0-            -0-
Chief Operating Officer   1996    125,000      -0-       -0-            -0-
                          1995    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              25,000           3.8%      $0.5625     12/29/06
Vice President, Controller







___________________________

1    The 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.



                                      -21-
<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
                                               YEAR-END (#)      YEAR-END ($)
                      SHARES      VALUE        ------------      ------------
                    ACQUIRED ON   REALIZED     EXERCISABLE/      EXERCISABLE/
   NAME             EXERCISE (#)   ($)         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-/$7,812

      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 1997, 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 1997 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 1997,  133,000 option shares expired or were  terminated.  As of
October  31,  1997,  options  relating to a total of  1,271,000  shares had been
granted to employees and others, of which 655,500 were granted in fiscal 1997.



                                      -22-
<PAGE>



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

      The  following  table sets forth as of  January  1, 1998,  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%  
                                                                        
                                   

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

      The  Company  performs  commercial  printing  services  for Life  Plus,  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

__________________________

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.


                                      -23-
<PAGE>



employed by and are officers of the Partnership. During 1997, the Company billed
Life Plus $572,000 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, 1997, Life
Plus' payment status is current with regard to receivables owed the Company.

      As of October  31,  1997,  the  Company  had made  loans to Mr.  Christian
totaling $44,500. 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, 1997 and 1996.

      (b)   Consolidated  Statements of Operations  for Each of the Years in the
            Two-Year Periods Ended October 31, 1997 and 1996.

      (c)   Consolidated  Statements  of  Stockholder's  Equity  for Each of the
            Years in the Two-Year Periods Ended October 31, 1997 and 1996.

      (d)   Consolidated  Statements  of Cash Flows for Each of the Years in the
            Two-Year Periods Ended October 31, 1997 and 1996.

      (e)   Notes to Consolidated Financial Statements.

2.    Report of Independent Certified Public Accountants.

3.    Reports on Form 8-K.

4.    Exhibits:











                                      -24-
<PAGE>



      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")

      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















                                      -25-
<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 27, 1998                    By:   /s/ William T. Evans
                                                --------------------------
                                                William T. Evans
                                                Principal Executive Officer


Date: January 27, 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 27, 1998                    Date: January 27, 1998



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

Date: January 27, 1998                    Date: January 27, 1998



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

Date: January 27, 1998                    Date: January 27, 1998





                                      -26-
<PAGE>
















                     PROFESSIONAL DENTAL TECHNOLOGIES, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                               FOR THE YEARS ENDED
                           OCTOBER, 31, 1997 AND 1996

























<PAGE>




                     PROFESSIONAL DENTAL TECHNOLOGIES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                  For The Years Ended October 31, 1997 And 1996






Independent Auditors' Reports                                               F-1

Consolidated Balance Sheet                                                  F-3

Consolidated Statement of Income                                            F-4 

Consolidated Statement of Stockholders' Equity                              F-5

Consolidated Statement of Cash Flows                                        F-6

Notes to Consolidated Financial Statements                                  F-7

















<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  sheet of  Professional
Dental  Technologies,  Inc. and  Subsidiaries  (the "Company") as of October 31,
1997, and the related  consolidated  statements of income,  stockholders' equity
and cash  flows for the year then  ended.  These  financial  statements  are the
responsibility  of the  management  of the  Company.  Our  responsibility  is to
express an opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides 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,  1997,  and the  results  of  their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles.




/s/ Deloitte & Touche LLP
-----------------------------------
Deloitte & Touche LLP
Little Rock, Arkansas
December 19, 1997








                                      F-1
<PAGE>

                                    SILVERMAN
                                      OLSON
                                  THORVILSON &
                                  KAUFMANN LTD

                          Certified Public Accountants

                          1550 Kinnard Financial Center
                             920 Second Avenue South
                          Minneapolis, Minnesota 55102


                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Shareholders
Professional Dental Technologies, Inc.
Batesville, Arkansas

We have audited the  accompanying  consolidated  balance  sheet of  Professional
Dental  Technologies,  Inc.  and its  subsidiaries  as of October  31,  1996 the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audit.

We conducted our audit 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 audit provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Professional Dental
Technologies,  Inc. and its  subsidiaries as of October 31, 1996 and the results
of its operations and of cash flows for the year then ended,  in conformity with
generally accepted accounting principles.


/s/ Silverman Olson Thorvilson & Kaufmann Ltd.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD.
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota

December 19, 1996









                                      F-2
<PAGE>





PROFESSIONAL DENTAL TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
--------------------------------------------------------------------------------
                                                              1997        1996
ASSETS                                                          (in thousands)

CURRENT ASSETS:
  Cash and cash equivalents                                   $1,267    $   728
  Certificates of deposit                                                   400
  Accounts receivable:                                                         
    Trade, net of allowance for doubtful accounts                              
    of $60,000 and 443,000 respectively (Note 6)               1,741      1,573
  Affiliates (Note 2)                                            133        160
  Inventory (Notes 3 and 6)                                    2,791      2,213
  Advances to employees, officers and directors (Note 2)          70         83
  Deferred income taxes (Note 9)                                 138        140
  Other current assets                                           249        227
                                                               -----     ------
          Total current assets                                 6,389      5,524
PROPERTY AND EQUIPMENT, Net (notes 4, 7 and 8)                 2,494      1,980
INVESTMENTS IN AND ADVANCES TO AFFILIATES (Notes 2 and 5)                   324
DEFERRED INCOME TAXES, Net (Note 9)                               79         58
OTHER ASSETS, Net                                                 52         91
                                                              ------     ------
TOTAL                                                         $9,014     $7,977
                                                              ======     ======

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Notes payable - line of credit (Note 6)                    $   390    $   726
  Accounts payable - trade                                     1,135        982
  Accrued payroll and payroll taxes                              633        370
  Accrued warranty costs                                         117        160
  Other accrued liabilities                                      526        453
  Current portion of long-term debt (Note 7)                     206        146
  Current portion of capital lease obligations (Note 8)          173         71
                                                             -------    -------
     Total current liabilities                                 3,180      2,908

LONG-TERM DEBT, Net of current portion (Note 7)                  755        677
CAPITAL LEASE OBLIGATIONS, Net of current portion (Note 8)       505        306
                                                             -------    -------
     Total liabilities                                         4,440      3,891
COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 10)

STOCKHOLDERS' EQUITY:
  Common stock; par value $.01; 30,000,000 shares 
  authorized; 14,100,000 shares issued and
  outstanding (Note 11)                                          141        141
  Additional paid-in capital                                     289        264
  Retained earnings                                            4,144      3,681
                                                             -------    -------
     Total stockholders' equity                                4,574      4,086
                                                             -------    -------

TOTAL                                                        $ 9,014    $ 7,977
                                                             =======    =======
                                                              
See notes to consolidated financial statements.


                                      F-3
<PAGE>



PROFESSIONAL DENTAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996
--------------------------------------------------------------------------------

                                                                1997      1996
                                                           (in thousands, except
                                                          per share information)


SALES (NOTES 2, 5 AND 10)                                     $23,823   $21,789

COST OF GOODS SOLD (NOTES 3 AND 11)                             9,427     9,235
                                                               ------    ------
    Gross profit                                               14,396    12,554

OPERATING EXPENSES (NOTES 2, 4, 10 AND 11)                     13,155    11,228
                                                               ------    ------
    Income from operations                                      1,241     1,326

OTHER INCOME (EXPENSES):
  Affiliate activity:
    Equity in net losses of joint ventures (Note 5)              (144)     (425)
    Write-down of investments in affiliates (Notes 2 and 5)      (127)     (293)
  Interest expense                                               (242)     (156)
  Miscellaneous income (expense) (Note 2)                          28       (57)
                                                               ------    -------
INCOME BEFORE INCOME TAXES (NOTE 9)                               756       395

PROVISION FOR INCOME TAXES                                        293       137
                                                              -------   -------
NET INCOME                                                    $   463   $   258
                                                              =======   =======
NET INCOME PER SHARE                                          $  0.03      0.02
                                                              =======   =======


See notes to consolidated financial statements.





                                      F-4
<PAGE>

<TABLE>
<CAPTION>

PROFESSIONAL DENTAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996
-----------------------------------------------------------------------------------------------------------------
                                                                                         
                                                                                          Equity   
                                                    Common Stock                         Adjustment
                                                  ---------------  Additional           from Foreign
                                                  Shares     Par    Paid-In   Retained     Currency
                                                  Issued    Value   Capital   Earnings   Translation     Total
                                                  --------------------------------------------------------------
                                                                         (in thousands)
<S>                                               <C>       <C>     <C>       <C>         <C>          <C>    

BALANCE AT OCTOBER 31, 1995                       14,100    $141     $239     $3,423         $(11)      $3,792

  Stock options issued for services                                    25                                   25

  Adjustment from foreign currency translation                                                 11           11

  Net income                                                                     258                       258
                                                 ------     ----     ----     ------         ----       ------

BALANCE AT OCTOBER 31, 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
                                                 ======     ====     ====     ======        =====       ======

See notes to consolidated financial statements.

</TABLE>









                                      F-5
<PAGE>

<TABLE>
<CAPTION>

PROFESSIONAL DENTAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996 (in thousands)
-------------------------------------------------------------------------------------------

                                                                     1997          1996
<S>                                                                <C>           <C>

OPERATING ACTIVITIES:
  Net income                                                       $  463         $  258
  Adjustments to reconcile net income to net cash 
  provided by operations:       
    Affiliate activity:
     Equity in net losses of joint ventures                           144            425
     Write-down of investments in affiliates                          127            293
    Depreciation and amortization                                     672            467
    Loss on disposal of property and equipment                          8              8
    Stock options issued for nonemployee services                      25             25
    Deferred income taxes                                             (19)           (23)
  Change in:
    Accounts receivable                                              (141)          (238)
    Inventory                                                        (578)           167      
    Advances - employees, officers and directors                       13             36
    Other assets                                                      (22)           147
    Accounts payable - trade                                          153           (217)
    Accrued payroll and payroll taxes                                 263             15
    Accrued warranty costs                                            (43)           (90)
    Other accrued liabilities                                          73            142
                                                                   ------         ------
          Net cash provided by operations                           1,138          1,415

INVESTING ACTIVITIES:
  Purchase of property and equipment                                 (739)          (515)
  Proceeds from the sale of property and equipment                      6             14
  Proceeds from (purchase of) certificates of deposit                 400           (400)
  Proceeds from (investment in) joint ventures                         53           (419)
                                                                  -------         ------
          Net cash used in investing activities                      (280)        (1,320)

FINANCING ACTIVITIES:
  Decrease in line of credit                                         (336)          (207)
  Proceeds of long-term debt                                          340            170
  Payment of long-term debt                                          (202)          (216)
  Payment of capital lease obligations                               (121)           (24)
                                                                  -------         ------
          Net cash used in financing activities                      (319)          (277)

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                               11
                                                                  -------         ------
INCREASE (DECREASE) IN CASH                                          539            (171)
CASH AND CASH EQUIVALENTS:
  Beginning of period                                                728             899
                                                                  ------          ------
  End of period                                                   $1,267          $  728
                                                                  ======          ======

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
     Interest                                                     $  231          $  159
     Income taxes                                                    246              35

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
   AND FINANCING ACTIVITIES - 
     Property and equipment purchased with capital leases            422             401
-------------------------------------------------------------------------------------------
</TABLE>
                                                           
See notes to consolidated financial statements.


                                      F-6
<PAGE>



PROFESSIONAL DENTAL TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996
--------------------------------------------------------------------------------


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 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,  1997),  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 and disclosure of contingent  assets and liabilities at the date
    of the  financial  statements,  and the  reported  amounts of  revenues  and
    expenses during the reporting period. Actual results could differ from those
    estimates.

    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.

    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 adopted Financial Accounting Standards Board
    ("FASB")  Statement  of  Financial  Accounting  Standards  ("SFAS") No. 121,
    ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
    TO BE DISPOSED OF in the year ended  October 31, 1997.  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. The adoption of SFAS No.
    121 had no effect on the Company's consolidated financial statements for the
    year ended October 31, 1997.

    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.




                                      F-7
<PAGE>


    NET  INCOME  PER SHARE - Net  income  per share  was  computed  based on the
    weighted  average  number of shares of common  stock  outstanding.  Weighted
    average  number of shares  outstanding  for the years ended October 31, 1997
    and 1996, was 14,100,000  shares.  Common stock equivalents have less than a
    3% dilutive effect.

    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 during the year.

    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.

    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 - The Company has adopted SFAS No. 123, ACCOUNTING
    FOR  STOCK-BASED  Compensation  during the year ended October 31, 1997. SFAS
    No. 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 No. 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, 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 and the amount an employee must pay to acquire the
    stock.  SFAS No.  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  No. 25 and related  interpretations  to its  employee  stock
    options.

    SELF  INSURANCE  - The  Company  is  self-insured  with  respect  to  health
    insurance and periodically estimates the liability of the Company for claims
    incurred but not reported,  adjusting  its recorded  liability as necessary.
    Such estimates are based on the Company's experience giving consideration to
    material  changes in medical cost or usage trends of the plan and the amount
    of contributions (if any) by participants.

    RECLASSIFICATIONS  -  Certain  reclassifications  have been made to the 1996
    financial  statements  in order to  conform  with 1997  financial  statement
    presentation.  These reclassifications had no effect on stockholders' equity
    or net income, as previously reported.




                                      F-8
<PAGE>


2.  RELATED PARTY TRANSACTIONS

    During  1997 and 1996,  the  Company  advanced  funds to certain  employees,
    officers and directors. The advances are due on demand. The advances were as
    follows at October 31:

                                                       1997        1996
     ---------------------------------------------------------------------

     Employees                                      $ 23,000     $ 29,000
     Officers and directors                           47,000       54,000
                                                    --------     --------

          Total                                     $ 70,000     $ 83,000
                                                    ========     ========
     ---------------------------------------------------------------------
     

    During the years  ended  October 31,  1997 and 1996,  the  Company  provided
    printing  services  with  revenues  aggregating  approximately  $572,000 and
    $729,000,  respectively, to its affiliates and to other companies controlled
    by the majority  shareholders of the Company.  These amounts are included in
    sales in the consolidated  statements of income.  As of October 31, 1997 and
    1996,  these  affiliated  companies owed the Company  $133,000 and $160,000,
    respectively,  reflected  as accounts  receivable-affiliates  in the balance
    sheets.

    During the years  ended  October 31,  1997 and 1996,  the Company  purchased
    inventory from its affiliates aggregating $0 and $427,000, respectively, and
    sold $340,000 and $933,000, respectively, of inventory to its affiliates.

    During the years  ended  October 31,  1997 and 1996,  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 $241,000 and $590,000, respectively.

    During the years ended October 31, 1997 and 1996,  the Company paid expenses
    of and  advanced  funds to its  affiliates.  The  amounts  owed  from  these
    affiliates are included in the  investments in and advances to affiliates on
    the  balance  sheet as of October  31,  1996.  Also  during the years  ended
    October  31,  1997 and 1996,  the  Company  wrote  down its  investments  in
    affiliates by $127,000 and $275,000,  respectively,  due to the  probability
    that these  investments were not recoverable.  During the year ended October
    31, 1997 the Company  charged no interest to any affiliate.  During the year
    ended  October  31,  1996 the  Company  charged  interest  of $10,000 to one
    affiliate.

3.  INVENTORY

    Inventory consisted of the following at October 31:

                                                       1997        1996
     ---------------------------------------------------------------------
     Finished goods                              $   589,000   $   818,000
     Work in process                                  13,000         -
     Raw materials                                 2,189,000     1,395,000
                                                 -----------   -----------
          Totals                                 $ 2,791,000   $ 2,213,000
                                                 ===========   ===========
     ---------------------------------------------------------------------

    During the years  ended  October 31,  1997 and 1996,  the Company  wrote off
    approximately $208,000 and $213,000, respectively, of obsolete raw materials
    and  finished  goods  which  are  reflected  in  cost of  goods  sold in the
    consolidated statements of income.




                                      F-9
<PAGE>


4.  PROPERTY AND EQUIPMENT

    Property and equipment consisted of the following at October 31:
    ----------------------------------------------------------------------------
                                                                      Estimated
                                                                    Useful Lives
                                           1997        1996           in Years
    ----------------------------------------------------------------------------

    Land                              $   116,000   $   116,000          -
    Buildings and improvements            780,000       783,000         7-39
    Manufacturing equipment             2,440,000     1,712,000         3-10
    Vehicles                              561,000       554,000          5
    Furniture and equipment               802,000       444,000         3-7
                                      -----------   -----------

       Total property and equipment     4,699,000     3,609,000
    Less accumulated depreciation      (2,205,000)   (1,629,000)
                                      -----------   -----------
       Property and equipment, net     $2,494,000   $ 1,980,000
                                      ===========   ===========
    ----------------------------------------------------------------------------

     Depreciation  expense  was  $632,000  and  $427,000  during 1997 and 1996,
     respectively.

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.
    Consequently,  during the years ended  October  31, 1997 and 1996,  Byte was
    allocated substantially all of the losses totaling approximately $55,000 and
    $185,000,  respectively.  Additionally  during  1997 and 1996,  the  Company
    wrote-down  its net investment in the  Partnership  amounting to $68,000 and
    $150,000, 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  $196,000 at
    October 31,  1997,  and a variable  interest  rate based on 1.5% over lender
    prime rate  (10.62% at October 31,  1997).  Such notes  mature  November 19,
    1998, and are expected by management of the Company to be refinanced.

    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.




                                      F-10
<PAGE>



    The following is a summary of the condensed  financial  position and results
    of operations for the  Partnership  for the years ended October 31, 1997 and
    1996.

    ----------------------------------------------------------------------------
                                                       1997           1996
    ----------------------------------------------------------------------------

    Current assets                                  $    5,000      $   49,000
    Noncurrent assets                                        0          12,000
                                                    ----------      ----------
          Total assets                                   5,000          61,000
                                                    ==========      ==========
    Current and total liabilities (substantially
       all to the Company)                           1,335,000       1,274,000
    Owners' deficit                                 (1,330,000)     (1,213,000)
                                                   -----------      ----------
          Total liabilities and owners' deficit    $     5,000      $   61,000
                                                   ===========      ==========

    Sales                                          $   262,000      $  920,000
                                                   ===========      ==========

    Net loss                                       $  ($55,000)     $ (186,000)
                                                   ===========      ==========
    ----------------------------------------------------------------------------

    The  Company  had  ownership  interests  for  several  years  in  a  general
    partnership known as Pro-Dentec Canada (the "Venture") which was involved in
    the 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.  For the  year  ended  October  31,  1996,  the  Company's
    allocated  losses totaled  $190,000.  Net sales were $604,000 and $1,431,000
    for the period from the beginning of fiscal year 1997 to the  termination of
    the Venture  (approximately six months) and the year ended October 31, 1996,
    respectively. After the termination of the Venture, net sales in Canada were
    included in the consolidated statement of income and totaled $439,000.

6.  LINE OF CREDIT

    At  October  31,  1997 and 1996,  the  Company  had  outstanding  short-term
    borrowings of $390,000 and $726,000,  respectively,  under an available bank
    line of credit  aggregating  $3,000,000.  The unused  portion of the line of
    credit at October 31, 1997 was $2,610,000. Interest is charged at a variable
    rate based on lender prime + 1.5% (10% at October 31, 1997).  Borrowings are
    collateralized  by receivables and inventory and guaranteed by the 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:

    ----------------------------------------------------------------------------
                                                            1997         1996
    ----------------------------------------------------------------------------

    Mortgage payable - collateralized by land and
      building with a carrying value at October 31,
      1997, of $274,000; interest at 8.25%; monthly
      payments of principal and interest aggregating 
      $2,297, with a balloon payment of $104,000 at
      maturity, March 1999.                              $128,000     $144,000

    Mortgage payable - collateralized by land and
      building with a carrying value at October 31,
      1997, of $231,000; interest at 8.75%; monthly
      payments of principal and interest aggregating
      $1,849, with a balloon payment of $165,000 at
      maturity, March 1999.                              175,000       182,000
    ----------------------------------------------------------------------------
                                                                       Continued



                                      F-11
<PAGE>



    ----------------------------------------------------------------------------
                                                            1997         1996
    ----------------------------------------------------------------------------

    Mortgage payable - collateralized by land and
      building with a carrying value at October 31,
      1997, of $276,000; interest at 8.25%; monthly
      payments of principal and interest aggregating 
      $2,148, with a balloon payment of $164,000 at
      maturity, April 2000.                              $190,000     $201,000

    Notes payable - collateralized by equipment with
      a carrying value at October 31, 1997, of 
      $51,000; interest at 7.0%; monthly principal
      and interest payments of $3,069 maturing
      March 1999.                                          50,000       92,000

    Notes payable - collateralized by equipment with
      a carrying value at October 31, 1997, of 
      $315,000; interest at 8.25%; monthly principal
      and interest payments of $6,935, maturing 
      November 1999.                                      288,000         -

    Notes payable - collateralized by vehicles with
      a carrying value at October 31, 1997, of
      $203,000; interest ranging from 7.0% - 13.3%;
      aggregate monthly principal and interest
      payments of $5,892 and maturity dates ranging
      from November 1997 to January 2001.                130,000       204,000
                                                        --------      --------
                                                         961,000       823,000
    Less current portion                                 206,000       146,000
                                                        --------      --------
    Long-term portion                                   $755,000      $677,000
                                                        ========      ========
    ----------------------------------------------------------------------------


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


     ---------------------------------------------------------------------------
          1998                                                       $206,000
          1999                                                        416,000
          2000                                                        251,000
          2001                                                         81,000
          2002                                                          7,000
                                                                     --------
                                                                     $961,000
                                                                     ========
     ---------------------------------------------------------------------------


8.  CAPITAL LEASE OBLIGATIONS

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

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

                                                       1997           1996
    ----------------------------------------------------------------------------

    Property and equipment                           $823,000       $401,000
    Less accumulated depreciation                     236,000         58,000
                                                     --------       --------
    Property and equipment, net                      $587,000       $343,000
                                                     ========       ========
    ----------------------------------------------------------------------------




                                      F-12
<PAGE>


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

    ----------------------------------------------------------------------------
     1998                                                        $234,000
     1999                                                         227,000
     2000                                                         224,000
     2001                                                         119,000
     2002                                                          12,000
                                                                 --------
          Total minimum lease payments                            816,000

    Less amount representing interest                             138,000
                                                                 --------
          Present value of net minimum lease payments             678,000
    Less current portion                                          173,000
                                                                 --------
    Capital lease obligation - net of current portion            $505,000
                                                                 ========
    ----------------------------------------------------------------------------

9.  INCOME TAXES

    The  provision  for income  taxes for the years  ended  October 31, 1997 and
    1996, consists of the following:

    ----------------------------------------------------------------------------
                                                            1997        1996
    ----------------------------------------------------------------------------

     Current expense                                      $312,000    $160,000
     Deferred benefit                                      (19,000)    (23,000)
                                                          --------    --------
          Total                                           $293,000    $137,000
                                                          ========    ========
     ---------------------------------------------------------------------------

    A reconciliation  of the federal  statutory income tax rate to the Company's
    effective  tax rate is as follows for the years  ended  October 31, 1997 and
    1996:

    ----------------------------------------------------------------------------
                                                1997                  1996
                                          -----------------    -----------------
                                          Amount    Percent    Amount    Percent
    ----------------------------------------------------------------------------

     Tax expense at maximum statutory
       rate                              $257,000    34.0%    $134,000    34.0%
     State tax,net of federal benefit      43,000     5.7       18,000     4.6
     Other                                 (7,000)   (0.9)     (15,000)   (3.9)
                                         --------    ----     --------    ----
          Provision for income taxes     $293,000    38.8%    $137,000    34.7%
                                         ========    ====     ========    ====
    ----------------------------------------------------------------------------

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





                                      F-13
<PAGE>

    ----------------------------------------------------------------------------
                                                            1997        1996
    ----------------------------------------------------------------------------

    Deferred tax assets:
     Investment in affiliates                             $112,000    $ 86,000
     Warranty                                               45,000      62,000
     Intangibles                                            38,000      29,000
     Compensation                                           74,000      55,000
     Allowance for doubtful accounts                        23,000      19,000
     Other                                                   5,000       3,000
                                                          --------    --------
                                                           297,000     254,000
    Deferred tax liability:
     Guaranteed payments of joint venture                   80,000      56,000
                                                          --------    --------
    Net deferred tax asset                                 217,000     198,000
    Current portion                                        138,000     140,000
                                                          --------    --------
          Net deferred tax asset - non-current            $ 79,000    $ 58,000
                                                          ========    ========
    ----------------------------------------------------------------------------















                                      F-14
<PAGE>



10. COMMITMENTS AND CONTINGENCIES

    LEGAL PROCEEDINGS - The Company and a former  wholly-owned  subsidiary ("PDT
    Production")  are defendants in a legal action in which the plaintiff claims
    that  the  Company  and PDT  Production  breached  their  obligation  to pay
    royalties to the plaintiff on an ultrasonic  scaler  previously  sold by the
    Company and claims further,  based on guaranteed  minimum  royalties through
    the year 2050, approximately $9,000,000 in actual losses for past and future
    royalties  and  damages  plus  unspecified  punitive  damages.  The  Company
    contends its  obligation  ceased with the  assignment for the benefit of PDT
    Production  creditors and the resulting  termination of the  product-related
    licensing agreement. The case is set for trial in April of 1998. The Company
    believes  its has  adequate  legal  defenses  with  respect to this suit and
    intends to vigorously defend against the action.  However,  it is reasonably
    possible  that  the case  could  result  in an  outcome  unfavorable  to the
    Company.  While  the  Company  currently  believes  that the  amount  of the
    ultimate  potential  loss would not be material to the  Company's  financial
    position,  the outcome of litigation is inherently  difficult to predict. In
    the event of an adverse  outcome,  the ultimate  potential loss could have a
    material effect on the Company's  financial  position or reported results of
    operations.

    The Company is party to other litigation matters and claims which are normal
    in the course of its  operations,  and while the results of  litigation  and
    claims cannot be predicted with  certainty,  management  believes,  based on
    advice  of  counsel,  the  final  outcome  of such  matters  will not have a
    materially adverse effect on the consolidated financial position.

    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:
    ----------------------------------------------------------------------------
     1998                                                       $ 52,000
     1999                                                         48,000
     2000                                                         50,000
     2001                                                         41,000
                                                                --------
                                                                $191,000
                                                                ========
     ---------------------------------------------------------------------------



    Rent expense was $126,000 and $101,000 for the years ended  October 31, 1997
    and 1996, respectively.

    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.  At that time,  royalty  payments will change to $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,  1997 and 1996,  the  Company  paid  royalties  of  $602,000  and
           $629,000,  respectively,  and up through  October 31, 1997,  has paid
           aggregate royalties of approximately $4,743,000.

    In addition,  the Company has certain other licensing  agreements related to
    its  distribution of various other dental  products.  During the years ended
    October  31,  1997 and 1996,  the  Company  incurred  royalties  under these
    licensing agreements totaling $115,000 and $82,000, respectively.




                                      F-15
<PAGE>


    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 $96,000  during the years ended
    October 31, 1997 and 1996, for consulting  services  provided.  In addition,
    ACTech earned and was paid profit allocation equivalent to 25% of PDTT's net
    profit,  as defined,  aggregating  $180,000 and $102,000 for the years ended
    October 31, 1997 and 1996,  respectively.  During the year ended October 31,
    1997,  ACTech repaid $41,000 that the Company had advanced to ACTech against
    future profits.

    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  experience,  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, 1997, 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, 1997, no
    sales of the related proprietary periodontal dental products have occurred.

    PURCHASE  COMMITMENTS  - As of  October  31,  1997,  the  Company  had total
    purchase commitments outstanding aggregating approximately $2,549,000.

    SIGNIFICANT  VENDORS - During the year ended  October 31, 1997,  the Company
    made purchases from one supplier which aggregated $535,000.

    PRODUCT SALES CONCENTRATION - Sales of the Company's Rota-dent and accessory
    products represented  approximately 71% of total revenues for the year ended
    October 31, 1997.

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, 1997 or 1996.

    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, 1997 and 1996,  options to purchase an
    aggregate  of  1,271,000  and 748,500  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.



                                      F-16
<PAGE>



    A summary of the status of the Company's stock option plan as of October 31,
    1997 and 1996,  and  changes  during the years  ending 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 November 1, 1995       1,528,500     $1.00 - $2.75    $ 1.42
      Granted                                         25,000        $0.8125       $ 0.81
      Expired                                       (720,500)    $1.00 - $1.50    $ 1.01
      Forfeited                                      (84,500)    $1.00 - $2.00    $ 1.90
                                                   ---------
     Options outstanding at October 31, 1996         748,500    $0.8125 - $2.75   $ 1.71
      Granted                                        655,500    $0.5625 - $3.00   $ 0.61
      Forfeited                                     (133,000)    $1.50 - $2.75    $ 2.31
                                                   ---------
     Options outstanding at October 31, 1997       1,271,000    $0.5625 - $3.00   $ 1.12
                                                   =========
     Options exercisable at October 31, 1997         563,000    $0.5625 - $2.375  $ 1.38
                                                   =========
     Options available for grant at 
       October 31, 1997                            3,729,000
                                                   =========
     --------------------------------------------------------------------------------------

    The following table  summarizes  information  about stock options at October 31, 1997:


------------------------------------------------------------------------------------------------
                                                    Weighted                         Weighted   
                                        Weighted     Average                          Average   
                                        Average      Exercise                         Exercise  
                         Number        Remaining     Price of          Number         Price of       
    Range of         Outstanding at   Contractual   Outstanding    Exercisable at    Exercisable     
 Exercise Prices    October 31, 1997     Life        Options      October 31, 1997    Options  
------------------------------------------------------------------------------------------------


     $1.25               100,000           2           1.25           100,000             1.25
$1.00 - $1.75             36,000           3           1.47            36,000             1.47
     $1.50               200,000           5           1.50           200,000             1.50
     $2.375               60,000           6           2.38            60,000             2.38
 $2.00 - $2.50           167,500           7           2.01            37,500             2.00
$1.5625 - $2.00           27,000           8           1.76               -                 -
     $0.8125              25,000           9           0.81            25,000             0.81
     $0.5625             643,500          10           0.56           104,500             0.56
      $3.00               12,000          10           3.00               -                 -
-------------------------------------------------------------------------------------------------
</TABLE>
                                                                                

    The  Company  applies APB Opinion  No. 25,  ACCOUNTING  FOR STOCK  ISSUED TO
    EMPLOYEES,  in  accounting  for its stock option and award plans.  Under the
    terms of the  plans,  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 these plans.  Net income
    and  earnings  per share on a proforma  basis as if the Company had utilized
    the  accounting  methodology  prescribed  by SFAS No.  123,  ACCOUNTING  FOR
    STOCK-BASED COMPENSATION,  would have been as follows (in thousands,  except
    per share data):



                                      F-17
<PAGE>



    ----------------------------------------------------------------------------
                                                       Years ended October 31,
                                                       -----------------------
                                                            1997       1996
    ----------------------------------------------------------------------------

     Net income:
      As reported                                         $ 463       $ 258
      Pro forma                                             431         251

     Earnings per share:
      As reported                                         $0.03       $0.02
      Pro forma                                            0.03        0.02
     ---------------------------------------------------------------------------

    The estimated fair value of options  granted during 1997 and 1996 was $.3480
    and $.5120 per share,  respectively.  For purposes of determining fair value
    of each option, the Company used the Black-Scholes  model with the following
    assumptions:

    ----------------------------------------------------------------------------
     Risk-free interest rate                                          5.84%
     Expected life                                                   10 years
     Expected volatility                                              42%
    ----------------------------------------------------------------------------


    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,
    1997,  these  options have not been  exercised.  In  conjunction  with these
    options,  the Company has recognized $25,000 of compensation expense for the
    years ended October 31, 1997 and 1996, respectively.

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>

     -------------------------------------------------------------------------------------------
                                                      1997                        1996
                                            ------------------------      ----------------------
                                             Carrying     Estimated       Carrying    Estimated
                                              Amount      Fair Value       Amount     Fair Value
     <S>                                   <C>            <C>             <C>         <C>
     --------------------------------------------------------------------------------------------

     ASSETS:
      Cash and cash equivalents            $1,267,000     $1,267,000     $  728,000   $  728,000
      Certificates of deposit                   -              -            400,000      400,000
      Accounts receivable:
        Trade                               1,741,000      1,741,000      1,573,000    1,573,000
        Affiliates                            133,000        133,000        160,000      160,000

     LIABILITIES:
      Notes payable - line of credit          390,000        390,000        726,000      726,000
      Accounts payable - trade              1,135,000      1,135,000        982,000      982,000
      Long-term debt                          961,000        938,000        823,000      794,000
      Commitments                               -              -              -            -
     ---------------------------------------------------------------------------------------------

</TABLE>



                                      F-18
<PAGE>



    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. RECENTLY ISSUED ACCOUNTING STANDARDS

    In February  1997,  the FASB issued  Statement  No. 128,  EARNINGS PER SHARE
    ("SFAS 128").  SFAS 128  established  standards for computing and presenting
    earnings per share ("EPS"),  simplifying the standards  previously  found in
    APB Opinion No. 15, EARNINGS PER SHARE. The current  presentation of primary
    EPS is replaced with a presentation of basic EPS. Dual presentation of basic
    and diluted EPS will be required on the face of the income statement 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 APB Opinion No. 15.

    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 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 annual financial  statements and 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.  SFAS  128  and 129 are
    effective for financial  statements issued for periods ending after December
    15, 1997,  including interim periods. The adoption of SFAS 128, 129, 130 and
    131 is not expected to have a material effect on the Company's  consolidated
    financial statements.



                                   * * * * * *




                                      F-19
<PAGE>