NATIONAL DENTEX CORP /MA/ - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 000-23092
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NATIONAL DENTEX CORPORATION
(Exact name of registrant as specified in its charter)

MASSACHUSETTS 04-2762050
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

526 BOSTON POST ROAD, WAYLAND, MA 01778
(Address of Principal Executive Offices) (Zip Code)

(508) 358-4422
(Registrant's Telephone No., including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR
VALUE $.01 PER SHARE
(Title of Class)

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

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

As of February 19, 2002, the aggregate market value of the 3,362,775
outstanding shares of voting stock held by non-affiliates of the registrant was
$86,625,084.

As of February 19, 2002, 3,449,881 shares of the registrant's Common Stock,
par value $.01 per share, were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's definitive Proxy Statement for the Registrant's Special
Meeting in Lieu of Annual Meeting of Stockholders to be held on April 9, 2002 is
incorporated by reference into Part III.
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PART I

ITEM 1. BUSINESS

GENERAL

National Dentex Corporation (the "Company") was founded in 1982 as H&M
Laboratories Services, Inc., a Massachusetts corporation, which acquired six
full-service dental laboratories and related branch laboratories from Healthco,
Inc. In 1983, the Company changed its name to National Dentex Corporation and
acquired 20 additional full-service dental laboratories and related branch
laboratories from Lifemark Corporation. The Company today owns and operates 36
dental laboratories, consisting of 33 full-service dental laboratories and three
branch laboratories located in 27 states through the United States. The
Company's dental laboratories custom design and fabricate dentures, crowns and
fixed bridges, and other dental prosthetic appliances. Each dental laboratory
operates under its own business name. The Company's principal executive offices
are located at 526 Boston Post Road, Wayland, MA 01778, telephone number (508)
358-4422. Its corporate web site is located at www.nationaldentex.com.

INFORMATION AS TO INDUSTRY SEGMENTS

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

DESCRIPTION OF BUSINESS

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

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

Restorative Products. Restorative products sold by the Company's dental
laboratories consist primarily of crowns and bridges. A crown replaces the part
of a tooth which is visible, and is usually made of gold or porcelain. A bridge
is a restoration of one or more missing teeth which is permanently attached to
the natural teeth or roots. In addition to the traditional crown, the Company
also makes porcelain jackets, which are crowns constructed entirely of
porcelain; onlays, which are partial crowns which do not cover all of the
visible tooth; and precision crowns, which are restorations designed to receive
and connect a removable partial denture. The Company also makes inlays, which
are restorations made to fit a prepared tooth cavity and then cemented into
place.

Reconstructive Products. Reconstructive products sold by the Company's
dental laboratories consist primarily of partial dentures and full dentures.
Partial dentures are removable dental prostheses which replace missing teeth and
associated structures. Full dentures are dental prostheses which substitute for
the total loss of teeth and associated structures. The Company also sells
precision attachments, which connect a crown and an artificial prosthesis, and
implants, which are fixtures anchored securely in the bone of the mouth to which
a crown, partial or full denture is secured by means of screws or clips.

Cosmetic Products. Cosmetic products sold by the Company's dental
laboratories consist primarily of porcelain veneers and ceramic crowns.
Porcelain veneers are thin coverings of porcelain cemented to the front of a
tooth to enhance personal appearance. Ceramic crowns are crowns made from
ceramic materials which most closely replicate natural teeth. The Company also
sells composite inlays and onlays, which replace silver fillings for a more
natural appearance, and orthodontic appliances, which are products fabricated to
move existing teeth to enhance function and appearance.

1

LABORATORY AND CORPORATE OPERATIONS

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

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

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

SALES AND MARKETING

The Company's local dental laboratories market and sell their products
through their own direct sales force. The sales force interacts with dentists
within its market area, primarily through visits to dentists' offices, to
introduce the dental laboratory's services and products offered, and to promote
new products and techniques that can assist dentists in expanding their
practices. The Company's customer-focused marketing and sales program entitled
the "NDX Reliance Program"(TM) is specifically designed to make choosing a
dental laboratory a risk free decision for dentists. Its five
components -- Practice Support, Laboratory Systems, Quality Assurance, Reliance
Restorations and a Continuing Education Series -- differentiate its qualified
laboratories from their many competitors. The Company believes that this unique
approach to assist the dentist and his or her staff to improve chairtime
efficiencies while providing unsurpassed service, superior quality and product
delivery every time they deliver a case, will enhance its ability to expand its
base of business by establishing lasting professional relationships with its
customers. The Company presently has a total of 32 sales representatives. In
addition, the dental laboratories, either alone or with local dental societies,
dental schools or study clubs, sponsor technical training clinics for dentists
on topics such as advanced clinical techniques. The local dental laboratories
also exhibit at state and local dental conventions.

COMPETITION

The dental laboratory industry is highly competitive and fragmented. A
typical dental laboratory's business originates from dentists located within 50
miles of the dental laboratory. There are approximately 12,000 dental
laboratories in the United States, ranging in size from one to approximately 200
technicians. The Company estimates that presently its sales represent less than
3% of the total sales of custom-made dental prosthetic appliances in the United
States. Competition is primarily from other dental laboratories in the
respective local market areas. The vast majority of dental laboratories consist
of single units, although the Company believes there is one national chain, the
Sentage Corporation Dental Services Group, which competes with the Company in
two market areas. There is also limited competition from mail order dental
laboratories.
2

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

EMPLOYEES

As of December 31, 2001, the Company had 1,513 employees, 1,488 of whom
worked at individual laboratories. Corporate management and administrative staff
totaled 25 people. None of the Company's employees is covered by a collective
bargaining agreement. Management considers the Company's employee relations to
be good.

INTELLECTUAL PROPERTY

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

ITEM 2. PROPERTIES

The Company currently leases a total of approximately 183,000 square feet
of space. As of December 31, 2001, the aggregate minimum annual rent payable for
all of its leased real properties was approximately $1,608,000. The Company
considers these properties to be modern, well maintained and suitable for its
purposes and believes that its current facilities are adequate to meet its needs
for the foreseeable future. The Company also believes that suitable substitute
or replacement space is readily available. The Company's principal executive and
administrative offices occupy approximately 10,200 square feet of space in
Wayland, Massachusetts. Its 29 leased dental laboratories range in size from
1,000 to 26,000 square feet and average $53,000 in annual base rent.

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

ITEM 3. LEGAL PROCEEDINGS

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

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

None.

3

PART II

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

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

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

As of February 19, 2002, there were approximately 352 registered record
holders of the Company's Common Stock, which the Company believes represented
approximately 1,600 beneficial holders. As of February 19, 2002, the low and
high bid prices of the Common Stock were $25.76 and $26.15, respectively.

4

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data for the five years ended December 31,
2001 are derived from the audited consolidated financial statements of the
Company. The data should be read in conjunction with the consolidated financial
statements and the related notes included in this Report and in conjunction with
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

5

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital decreased from $19,455,000 at December 31,
2000 to $15,060,000 at December 31, 2001. Cash and equivalents decreased
$5,923,000 from $12,301,000 at December 31, 2000 to $6,378,000 at December 31,
2001. Operating activities provided $7,435,000 in cash flow for the year ended
December 31, 2001.

Cash outflows related to dental laboratory acquisitions totaled $9,106,000
for the year ended December 31, 2001. Capital expenditures for the same period
were $1,641,000. During the year ended December 31, 2001, the Company
repurchased an aggregate of 161,600 shares of common stock, at a total cost of
$3,232,000, under its stock repurchase program.

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

A commitment fee of one eighth of 1% is payable on the unused amount of
both lines of credit. At December 31, 2001, the full principal amount was
available to the Company under both lines of credit. The Agreement requires
compliance with certain covenants, including the maintenance of specified net
worth and other financial ratios. As of December 31, 2001, the Company was in
compliance with these covenants.

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

RESULTS OF OPERATIONS

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

6

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Net Sales

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

Cost of Goods Sold

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

Total Operating Expenses

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

Operating Income

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

Interest (Income) Expense

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

Provision for Income Taxes

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

Net Income

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

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

Net Sales

For the year ended December 31, 2000, net sales increased $6,041,000 or
8.7% over the prior year. Approximately $940,000 of this increase was
attributable to business at dental laboratories owned less than one year, with
the remaining increase representing sales growth at dental laboratories owned
both the year ended December 31, 2000 and the comparable year ended December 31,
1999.

7

Cost of Goods Sold

The Company's cost of goods sold increased by $3,807,000 or 9.4% in the
fiscal year ended December 31, 2000 over the prior fiscal year, attributable
primarily to increased unit sales. As a percentage of sales, cost of goods sold
increased from 58.0% to 58.4%. Increases in labor and material costs were
partially offset by decreases in laboratory overhead expenses. The rising cost
of palladium, a component of dental alloys used in the manufacture of many of
the Company's products, continued to be a factor in the increased material
costs. During 2000, the average cost of this precious metal rose 89% over the
average cost during 1999, and this rate accelerated in the fourth quarter. The
Company attempted to address this issue in each marketplace by instituting price
increases, temporary surcharges and the use of substitute metals. Since the cost
of this commodity has continued to increase for several years, each of the
Company's laboratories have instituted a program to either switch its current
palladium customers to less expensive metals, such as gold, or to make the
surcharges permanent by eliminating all unit pricing and charging a fee per unit
plus metal.

Total Operating Expenses

Operating expenses, which consist of selling, delivery and administrative
expenses both at the laboratory and corporate level, increased by $1,330,000 or
6.4% in the year ended December 31, 2000 over 1999. During this same period
operating expenses decreased as a percentage of net sales from 29.9% in 1999 to
29.3% in 2000.

Operating Income

Due to the increase in net sales and a reduction in operating expenses as a
percent of net sales, operating income increased $903,000 or 10.7% in fiscal
year 2000 over fiscal year 1999.

Interest (Income) Expense

Interest income increased by $233,000 in the year ended December 31, 2000
from 1999. The increase was due to increased investment principal and rising
interest rates.

Provision for Income Taxes

The provision for income taxes increased to $3,868,000 in 2000 from
$3,456,000 in 1999. This $412,000 increase was the result of increased income.
The 39.6% effective tax rate for fiscal year 1999 declined to 39.4% for fiscal
year 2000.

Net Income

As a result of all the factors discussed above, net income increased to
$5,961,000 or $1.66 per share on a diluted basis in 2000 from $5,262,000 or
$1.48 per share on a diluted basis in 1999.

GENERAL

This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that could affect capital expenditures, the Company's
requirements for capital, the costs associated with anticipated acquisitions and
the Company's results of operations include general economic conditions, the
availability of laboratories for purchase by the Company, the ability of the
Company to acquire and successfully operate additional laboratories,
governmental regulation of health care, trends in the dental industry towards
managed care, other factors affecting patient visits to the Company's clients,
increases in labor and materials costs and other risks indicated from time to
time in filings with the Securities and Exchange Commission.

8

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

QUARTERLY RESULTS

The following table sets forth certain selected financial information for
the Company for its eight most recent fiscal quarters. In the opinion of the
Company, this unaudited information has been prepared on the same basis as the
audited financial information and includes all adjustments (consisting of only
normal, recurring adjustments) necessary to present this information fairly when
reviewed in conjunction with the Company's Consolidated Financial Statements and
notes thereto contained herein.

The Company's results of operations have historically fluctuated on a
quarterly basis and are expected to be subject to quarterly fluctuations in the
future. As a result, the Company believes that the results of operations for the
interim periods are not necessarily indicative of the results to be expected for
any future period or for a full year. Quarterly results are subject to
fluctuations resulting from a number of factors, including the number of working
days in the quarter for both dentists and Company employees, the number of paid
vacation days and holidays in the period and general economic conditions.
Historically, the second quarter has generated the highest quarterly net sales
for the year and has been the most profitable for the Company due to the greater
number of working days in the quarter and more patients scheduling visits with
their dentists before departing for summer vacation.

LOCATION OF FINANCIAL STATEMENTS

The consolidated financial statements furnished in connection with this
Report are attached immediately following the Signatures.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

9

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Directors. The information with respect to directors required by this
item is incorporated herein by reference from the Company's Proxy Statement
dated March 8, 2002 for the Special Meeting in Lieu of Annual Meeting of
Shareholders to be held on April 9, 2002 (the "2002 Proxy Statement").

(b) Executive Officers. The information with respect to executive officers
required by this item is incorporated herein by reference from the 2002 Proxy
Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference
from the 2002 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by reference
from the 2002 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference
from the 2002 Proxy Statement.

10

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

(1) The financial statements set forth in the list below are filed as part
of this Report.

(2) The financial statement schedules set forth in the list below are filed
as part of this Report.

(3) Exhibits filed herewith or incorporated herein by reference are set
forth in Item 14(c) below.

List of Financial Statements and Schedules Referenced in this Item 14

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

Financial Statement Schedule included herewith:

SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS

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

(b) Reports on Form 8-K.

During the Company's fiscal quarter ended December 31, 2001, the Company
did not file any Current Reports on Form 8-K.

(c) Exhibits.

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

(ii) The following exhibit was filed with the Company's Form S-8
Registration Statement on August 1, 2001 (File No. 333-66446) and is herein
incorporated by reference:

11

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

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

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

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

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

12

SIGNATURES

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

NATIONAL DENTEX CORPORATION

BY: /s/ DAVID L. BROWN
------------------------------------
DAVID L. BROWN
President & CEO

March 8, 2002

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

13

NATIONAL DENTEX CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of National Dentex Corporation:

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

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

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

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

ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 8, 2002

F-2

NATIONAL DENTEX CORPORATION

CONSOLIDATED BALANCE SHEETS

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

F-3

NATIONAL DENTEX CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

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

F-4

NATIONAL DENTEX CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

F-5

NATIONAL DENTEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

F-6

NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001

(1) ORGANIZATION

National Dentex Corporation (the "Company") owned and operated 33
full-service dental laboratories and three branch laboratories in 27 states
throughout the United States as of December 31, 2001. Working from dentists'
work orders, the Company's dental laboratories custom design and fabricate
dentures, crowns and fixed bridges, and other dental prosthetic appliances.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include all operations of the
Company. Acquisitions are reflected from the date acquired by the Company (see
Note 3) to December 31, 2001. All significant intercompany balances and
transactions have been eliminated in consolidation.

Revenue Recognition

Revenue is recognized as the dentists' orders are shipped. In December
1999, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements". This bulletin
established additional guidelines for revenue recognition. The Company's revenue
recognition policy complies with this pronouncement.

Advertising and Promotional Costs

Advertising, promotional and marketing costs are charged to earnings in the
period in which they are incurred, in accordance with AICPA Statement of
Position (SOP) 93-7, "Reporting on Advertising Costs."

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with
maturities of 90 days or less to be cash equivalents.

Inventories

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

Property and Equipment

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

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

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

Gains and losses are recognized upon the disposal of property and
equipment, and the related accumulated depreciation and amortization are removed
from the accounts. Maintenance, repairs and

F-7

NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

betterments that do not enhance the value of or increase the life of the assets
are charged to operations as incurred.

Other Assets

Included in other assets are the costs of noncompetition agreements, which
are deferred and amortized on a straight-line basis according to the terms of
the agreements over 5 to 10 years. Goodwill is being amortized using the
straight-line method over a period of 20 years, the estimated useful life. The
Company continually evaluates whether events and circumstances have occurred
that indicate the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. When
factors indicate that goodwill should be evaluated for possible impairment, the
Company uses an estimate of the related business segment's undiscounted
operating income over the remaining life of the goodwill in measuring whether
the goodwill is recoverable. As of December 31, 2001, there have been no
impairments of goodwill. Accumulated amortization on these intangible assets was
approximately $6,691,000 and $8,348,000 at December 31, 2000 and 2001,
respectively.

Income Taxes

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

Earnings Per Share

In accordance with the requirements of SFAS No. 128, "Earnings per Share,"
basic earnings per share is computed by dividing net income by the weighted
average number of shares outstanding and diluted earnings per share reflects the
dilutive effect of stock options and warrants. The pro forma weighted average
number of shares outstanding, the dilutive effects of outstanding stock options
and warrants, and the shares under option plans that were antidilutive for the
years ended December 31, 1999, 2000 and 2001 are as follows:

Stock-Based Compensation

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

F-8

NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Treasury Stock Purchases

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

Use of Estimates

The preparation of financial statements in conformity with 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.

Disclosures About the Fair Value of Financial Instruments

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

Reclassifications

Certain amounts in the 1999 and 2000 financial statements and notes have
been reclassified to conform with the 2001 presentation.

Comprehensive Income

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

Disclosures about Segments of an Enterprise

The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in the fiscal year ended December 31, 2000.
SFAS No. 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate financial
information is available for the evaluation by the chief decision maker, or
decision-making group, in making decisions how to allocate resources and assess
performance. To date, the Company has viewed its operations and manages its
business principally as one operating segment.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 addresses the

F-9

NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination. SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination, whether acquired individually or with a group of other assets, and
the accounting and reporting for goodwill and other intangibles subsequent to
their acquisition. These standards require that the purchase method of
accounting be used for business combinations and eliminate the use of the
pooling-of-interest method. Additionally, they require that goodwill no longer
be amortized but instead be subject to impairment tests at least annually. The
Company is required to adopt SFAS No. 141 and SFAS No. 142 on a prospective
basis as of January 1, 2002. However, effective July 1, 2001, the Company
implemented certain provisions, specifically the discontinuation of goodwill
amortization on acquisitions completed after June 30, 2001, and will be
implementing the remaining provisions effective January 1, 2002. Goodwill
amortization, which will cease effective January 1, 2002, was $653,000, $699,000
and $911,000 during the years ended December 31, 1999, 2000 and 2001,
respectively. The Company is currently evaluating the remaining provisions of
SFAS No. 142 to determine the effect, if any, they may have on the Company's
consolidated results of operations, financial position or cash flows.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." This statement requires that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and it broadens the presentation of
discontinued operations to include more disposal transactions. The provisions of
this statement are effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early adoption permitted.
The Company believes the adoption of SFAS No. 144 will not have a material
impact on its results of operations or financial position.

(3) ACQUISITIONS

During 2000, the Company acquired the following dental laboratory
operations:

Pro Dental................................................. April 2000
Emmets Dental.............................................. August 2000
Oral Arts.................................................. October 2000
Ideal Dental............................................... November 2000

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

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

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

F-10

NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The total purchase price has been allocated to the acquired assets and
liabilities based on preliminary estimates of their related fair values, which
are subject to revision. The total purchase price was allocated as follows as of
December 31, 2000 and 2001:

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

The following unaudited pro forma operating results of the Company assume
the acquisitions had been made as of January 1, 2000. Such information includes
adjustments to reflect additional depreciation, noncompete amortization,
amortization of goodwill and interest expense, and is not necessarily indicative
of what the results of operations would actually have been, or of the results of
operations in future periods.

For all acquisitions completed prior to July 1, 2001, the pro forma results
presented above were calculated assuming that amortization expense related to
goodwill was incurred throughout fiscal years 2000 and 2001. For acquisitions
completed after June 30, 2001, the pro forma results from operations presented
above were calculated assuming that no amortization expense related to goodwill
was incurred for fiscal years 2000 and 2001, in accordance with SFAS No. 141,
which was effective on July 1, 2001.

F-11

NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(4) INCOME TAXES

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

Deferred income taxes are comprised of the following at December 31, 2000
and 2001:

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

F-12

NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) LINES OF CREDIT

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

A commitment fee of one-eighth of 1% is payable on the unused amount of
both lines of credit. As of December 31, 2001, the full principal amount was
available to the Company under both lines of credit. The Agreement requires
compliance with certain covenants, including the maintenance of net worth and
other financial ratios. As of December 31, 2001, the Company was in compliance
with these covenants.

(6) BENEFIT PLANS

The Company has an employee savings plan (the "Plan") under Internal
Revenue Service (IRS) Code Section 401(k). The Plan allows contributions of up
to 10% of a participant's salary, a portion of which is matched in cash by the
Company. The Company contributes this amount once a year, within 120 days after
December 31, the Plan's year-end. All employees are eligible to participate in
the Plan after completing one year of service with the Company and the
attainment of age 21. Participants become fully vested after six years of
service or upon attaining age 65. The Company has incurred charges to operations
of approximately $401,000, $412,000 and $398,000 to match contributions for the
years ended December 31, 1999, 2000 and 2001, respectively.

The Company has an incentive plan, the Laboratory Plan, for dental
laboratory management and other designated key employees who could directly
influence the financial performance of an individual dental laboratory.
Eligibility is determined annually for each laboratory. Each participant is
eligible to receive an amount based on the achievement of certain earnings
levels of the participant's laboratory, as defined. The Company has incurred
charges to operations of approximately $2,157,000, $2,472,000 and $2,725,000 for
the years ended December 31, 1999, 2000 and 2001, respectively, under the
Laboratory Plan.

The Company has an executive bonus plan (the "Executive Plan") for key
executives and management of the Company, and a management bonus plan (the
"Managers Plan") for laboratory group managers. Eligibility to participate in
each plan is determined annually. Participants are eligible to receive a bonus,
based on a percentage of salary, dependent upon the achievement of earnings
targets, as defined. The bonus is distributed within 90 days after year-end. The
Company has incurred aggregate charges to operations of approximately $507,000,
$465,000 and $216,000, for the years ended December 31, 1999, 2000 and 2001,
respectively, with respect to these plans.

The Company established a Supplemental Executive Retirement Plan ("SERP")
for certain key employees providing for annual benefits payable over a period of
10 years beginning at age 65 or date of retirement. Benefits will be funded by
life insurance contracts purchased by the Company. The cost of these benefits is
being charged to expense and accrued using a present value method over the
expected terms of employment. The charges to expense for the years ended
December 31, 1999, 2000 and 2001, were approximately $171,000, $197,000 and
$284,000, respectively.

(7) COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company is committed under various noncancelable operating lease
agreements covering its office space and dental laboratory facilities and
certain equipment. Certain of these leases also require the Company to pay
maintenance, repairs, insurance and related taxes. The total rental expense for
the years ended

F-13

NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1999, 2000 and 2001 was approximately $2,015,000, $2,068,000 and
$2,278,000, respectively. The approximate aggregate minimum lease commitments
under these leases as of December 31, 2001 are as follows:

Employment Contracts and Change-in-Control Arrangements

In April 1995 and January 2001, the Company entered into employment
contracts and change-in-control arrangements with certain key executives. The
initial term of these employment contracts expired in April 1998, and the
contracts by their terms renew automatically thereafter until termination by the
Company or the executive. The change-in-control arrangements provide certain
severance benefits in the event that the executive is terminated by the Company
without cause or the executive terminates his employment contract for certain
specified reasons.

(8) STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN

Stock Option Plans

In May 1992, the Company's Board of Directors (the "Board") adopted the
1992 Long-Term Incentive Plan (the "LTIP"). Under the LTIP, the Board may grant
stock options, stock appreciation rights, restricted stock, deferred stock,
stock purchase rights and other stock-based compensation to key employees,
officers and directors of the Company. In August 1995, the Board amended the
LTIP to increase the number of shares of common stock reserved for issuance
under the plan from 150,000 to 235,000, in April 1997 to 335,000 and in April
1998 to 485,000. As of December 31, 2001, 388,743 options were outstanding, at
exercise prices ranging between $12.25 and $21.88 per share, which represent the
fair market values on the respective dates of grant. Of these options, 235,692
were exercisable at December 31, 2001.

F-14

NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following summarizes the transactions of the Company's LTIP for the
years ended December 31, 1999, 2000 and 2001:

Of the options outstanding at December 31, 2001, 110,409 have exercise
prices between $12.25 and $15.00, with a weighted average price of $12.97 and a
weighted average remaining contractual life of 6.4 years. Of these options,
64,526 are exercisable at a weighted average exercise price of $12.94. Another
103,159 of the options outstanding have exercise prices between $15.25 and
$20.13, with a weighted average exercise price of $16.97 and a weighted average
remaining contractual life of 6.1 years. Of these options, 100,491 are
exercisable at a weighted average exercise price of $16.97. The remaining
175,175 options have exercise prices between $20.25 and $21.88, with a weighted
average exercise price of $20.43 and a weighted average remaining contractual
life of 7.6 years. Of these options, 70,675 are exercisable at a weighted
average exercise price of $20.70.

In January, 2001, the Company's Board of Directors adopted the 2001 Stock
Plan. Under this plan, the Board may grant stock options, stock appreciation
rights, restricted stock, deferred stock, stock purchase rights and other
stock-based compensation to key employees, officers and directors of the
Company. The Board reserved 300,000 shares of common stock for issuance under
the Plan.

The following summarizes the transactions of the Company's 2001 Stock Plan
for the year ended December 31, 2001:

The options outstanding at the end of December 31, 2001 have exercise
prices between $20.05 and $21.05, with a weighted average price of $20.47 and a
weighted average remaining contractual life of 9.3 years. None of these options
are exercisable at December 31, 2001.

F-15

NATIONAL DENTEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Also, the Company has the 1992 Employees' Stock Purchase Plan (the "Stock
Purchase Plan"), as amended in April 2000, under which an aggregate of 200,000
shares of the Company's common stock may be purchased, through a payroll
deduction program, primarily at a price equal to 85% of the fair market value of
the common stock on either April 1, 2001 or March 31, 2002, whichever is lower.
The number of shares of common stock purchased through the Stock Purchase Plan
for 1999, 2000 and 2001 were 16,624, 17,528 and 15,823, respectively.

The Company accounts for the LTIP, 2001 Stock Plan and the Stock Purchase
Plan under APB Opinion No. 25, under which no compensation cost has been
recognized. Had compensation costs for these plans been determined consistent
with SFAS No. 123, the Company's net income and earnings per share would have
been reduced to the following pro forma amounts:

In calculating the pro forma information set forth above, the fair value of
each option grant under the LTIP, the 2001 Stock Plan and the Stock Purchase
Plan is estimated as of the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants in 1999,
2000 and 2001, respectively: risk-free interest rates of between 5.56% and 6.47%
for the 1999 option grants, between 4.56% and 5.49% for the 2000 option grants
and between 0.48% and 3.68% for the 2001 option grants; no expected dividend
yield for any plan year; expected lives of between one and three years for the
1999, 2000 and 2001 option grants, based on vesting periods; expected volatility
of between 30.96% and 32.78% for option grants in 1999, between 30.45% and
30.75% for option grants in 2000, and between 28.61% and 29.65% for option
grants in 2001.

F-16

SCHEDULE II

NATIONAL DENTEX CORP0RATION

VALUATION AND QUALIFYING ACCOUNTS

NOTES
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