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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

For the transition period from                     to                    

Commission file number 000-23092

National Dentex Corporation

(508) 358-4422

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share

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

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes þ          No o

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

      As of February 20, 2004, 3,693,506 shares of the registrant’s Common Stock, par value $.01 per share, were issued and 3,433,901 were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      The Registrant’s definitive Proxy Statement for the Registrant’s Special Meeting in Lieu of Annual Meeting of Stockholders to be held on April 13, 2004 is incorporated by reference into Part III.

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PART I

Item 1.     Business

General

      We were founded in 1982 as H&M Laboratories Services, Inc., a Massachusetts corporation, which acquired six full-service dental laboratories and related branch laboratories from Healthco, Inc. In 1983, we changed our name to National Dentex Corporation and acquired 20 additional full-service dental laboratories and related branch laboratories from Lifemark Corporation. Our acquisition strategy is to consolidate within the dental laboratory industry and use our financial and operational synergies to create a competitive advantage. Over the last five years we have acquired the following stand-alone laboratory facilities: in 1999, Advanced Dental Arts; in 2000, Oral Arts and Ideal Dental; in 2001, Creative Dental Ceramics, Bauer Dental Studio, Aronovitch Dental, Crown Dental Studio and The Freeman Center; in 2002, Fox Dental and E&S Dental; and, in 2003, Salem Dental, Top Quality Partials, Midtown Dental and Thoele Dental. In addition, we acquired various smaller laboratories and consolidated them into existing operations.

      We currently own and operate 40 dental laboratories, consisting of 38 full-service dental laboratories and two branch laboratories located in 29 states throughout the United States. Our dental laboratories custom design and fabricate dentures, crowns and fixed bridges, and other dental prosthetic appliances. Each dental laboratory operates under its own business name. Our principal executive offices are located at 526 Boston Post Road, Wayland, MA 01778, telephone number (508) 358-4422. Our corporate web site is located at www.nationaldentex.com. We make available free of charge through our website our annual Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Information as to Industry Segments

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

Description of Business

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

      Our products are grouped into the following three main categories:

	Restorative Products. Restorative products that our dental laboratories sell consist primarily of crowns and bridges. A crown replaces the part of a tooth that is visible, and is usually made of gold or porcelain. A bridge is a restoration of one or more missing teeth that is permanently attached to the natural teeth or roots. In addition to the traditional crown, we also make porcelain jackets, which are crowns constructed entirely of porcelain; onlays, which are partial crowns which do not cover all of the visible tooth; and precision crowns, which are restorations designed to receive and connect a removable partial denture. We also make inlays, which are restorations made to fit a prepared tooth cavity and then cemented into place.
	Reconstructive Products. Reconstructive products sold by our dental laboratories consist primarily of partial dentures and full dentures. Partial dentures are removable dental prostheses that replace missing teeth and associated structures. Full dentures are dental prostheses that substitute for the total loss of teeth and associated structures. We also sell precision attachments, which connect a crown and an artificial prosthesis, and implants, which are fixtures anchored securely in the bone of the mouth to which a crown, partial or full denture is secured by means of screws or clips.

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

Laboratory and Corporate Operations

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

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

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

Sales and Marketing

      The majority of our local dental laboratories market and sell their products through their own direct sales force. The sales force interacts with dentists within its market area, primarily through visits to dentists’ offices, to introduce the dental laboratory’s services and products offered, and to promote new products and techniques that can assist dentists in expanding their practices. Our customer-focused marketing and sales program, entitled the “NDX Reliance 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 our qualified laboratories from their many competitors. We believe that this unique approach to assist the dentist and his or her staff to improve chairtime efficiencies while providing exceptional service, superior quality and product delivery every time they deliver a case will enhance our ability to expand our base of business by establishing lasting professional relationships with our customers. We presently have a total of 35 sales representatives. In addition, our dental laboratories, alone or with local dental societies, dental schools or study clubs, sponsor technical training clinics for dentists and their staffs on topics such as advanced clinical techniques. The local dental laboratories also exhibit at state and local dental conventions.

Competition

      The dental laboratory industry is highly competitive and fragmented. A typical dental laboratory’s business originates from dentists located within 50 miles of the dental laboratory. There are approximately 12,000 dental laboratories in the United States, ranging in size from one to approximately 200 technicians. We

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

Employees

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

Intellectual Property

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

Backlog

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

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

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

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

      None.

PART II

Trading Market

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

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

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

Stock Plan Disclosure

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

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

      The following selected financial data for the five years ended December 31, 2003 are derived from the audited consolidated financial statements. The consolidated financial statements for fiscal years 1999 through 2001 were audited by Arthur Andersen LLP (“Andersen”) which has ceased operations. A copy of the report previously issued by Andersen is included elsewhere in this Report. Such report has not been reissued by Andersen. The data should be read in conjunction with the consolidated financial statements and the related notes included in this Report and in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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

Overview

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

	Restorative products that are permanently affixed by a dentist to a patients’ existing dental anatomy, including traditional porcelain fused to metal crowns and bridges and dental implants.
	Reconstructive products that are removable prostheses that replace missing teeth and associated structures, including partial and full dentures.
	Cosmetic products that consist primarily of porcelain veneers designed to enhance the appearance of the front of a tooth as well as all ceramic crowns that are made without a traditional metal substructure and more closely replicates the appearance of natural teeth. This category also includes composite inlays and onlays, which replace silver fillings for a more natural appearance and orthodontic appliances, which are products fabricated to move existing teeth to enhance function and appearance.

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

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

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Liquidity and Capital Resources

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

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

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

      We maintain a financing agreement (the “Agreement”) with Citizens Bank of Massachusetts (the “Bank”). The Agreement, as amended and extended on December 31, 2001, includes revolving lines of credit of $4,000,000 and $8,000,000. The interest rate on both revolving lines of credit is the prime rate minus 0.5% or the London Interbank Offered Rate (“LIBOR”) plus 1.5%, at our option. Both revolving lines of credit mature on June 30, 2004. We are currently evaluating competitive proposals to both increase and extend our current credit facilities. We expect to finalize new agreements in April 2004 and do not anticipate any difficulties in concluding new lending arrangements.

      A commitment fee of one eighth of 1% is payable on the unused amount of both lines of credit. At December 31, 2003, the full principal amount was available to us under both revolving lines of credit. The Agreement requires compliance with certain covenants, including the maintenance of specified net worth and other financial ratios. As of December 31, 2003, we were in compliance with these covenants.

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

Commitments and Contingencies

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

Payments Due By Period

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

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

Results of Operations

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

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

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

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

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

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

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

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

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

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

      For the year ended December 31, 2002, net sales increased $9,460,000 or 11.0% over the prior year. Net sales increased by approximately $9,995,000 as a result of acquisitions, measured by business at dental laboratories owned less than one year. Net sales declined approximately $535,000, or 0.6% at dental laboratories owned for both the year ended December 31, 2002 and the comparable year ended December 31, 2001.

      Our cost of goods sold increased by $5,917,000 or 11.8% in the fiscal year ended December 31, 2002 over the prior fiscal year, attributable primarily to increased unit sales resulting from laboratory acquisitions. As a percentage of sales, cost of goods sold increased from 58.7% to 59.0%. Increases in labor and related expenses were partially offset by decreases in materials costs. The increase in labor cost and related expenses as a percentage of sales was primarily attributable to increasing health insurance costs as well as declining internal sales growth that led to an increase in excess production capacity. The decrease in material cost as a

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      Operating expenses, which consist of selling, delivery and administrative expenses both at the laboratory and corporate level, increased by $3,701,000 or 14.4% in the year ended December 31, 2002 over 2001. During the same period operating expenses increased as a percentage of net sales from 29.9% in 2001 to 30.9% in 2002. Selling and corporate overhead expenses increased as we implemented a national marketing program, “the NDX Reliance Program^TM”, that was introduced during October 2001. During 2001 and 2002, we incurred advertising and marketing expenses related to the NDX Reliance Program^TM of approximately $141,000 and $878,000, respectively.

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

      Amortization expense declined approximately $987,000. The decline in amortization expense was attributable to the implementation of SFAS No. 142.

      As a result of expenses related to the development of the NDX Reliance Program^TM, investments in the strengthening of our management team, and increases in health and other insurance costs, coupled with the current economic climate, our operating income declined by $159,000 to $9,657,000 for the year ended December 31, 2002 from $9,816,000 for the prior year. As a percentage of net sales, operating income declined from 11.4% in 2001 to 10.1% for 2002.

      Interest income decreased by $150,000 in the year ended December 31, 2002 from 2001. The decrease was due to lower investment principal and lower interest rates.

      The provision for income taxes decreased to $3,644,000 in 2002 from $3,939,000 in 2001. This $295,000 decrease was the result of decreased income and a lower effective tax rate. The 39.7% effective tax rate for fiscal year 2001 decreased to 38.3% for fiscal year 2002. The decrease in the effective tax rate is due to non-deductible expenses, primarily goodwill amortization, constituting a smaller portion of taxable income as a result of the elimination of such amortization due to the adoption of FAS 142 on January 1, 2002.

      As a result of all the factors discussed above, net income decreased to $5,882,000 or $1.66 per share on a diluted basis in 2002 from $5,978,000 or $1.68 per share on a diluted basis in 2001.

Critical Accounting Policies

      Financial Reporting Release No. 60 as released by the Securities and Exchange Commission requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. While the preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of expenses during the reporting period, we do not believe our financial statements are significantly affected by complex accounting policies and methods. A summary of certain of our significant accounting policies is presented below.

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Summary of Significant Accounting Policies

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

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

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

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

      Gains and losses are recognized upon the disposal of property and equipment, and the related accumulated depreciation and amortization are removed from the accounts. Maintenance, repairs and betterments that do not enhance the value of or increase the life of the assets are charged to operations as incurred.

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

      At each balance sheet date, our management evaluates the recoverability of long-lived assets, including property and equipment and intangible assets, using certain financial indicators, such as historical and future ability to generate income from operations. Our policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable. The determination is based on an evaluation of such factors as the occurrence of a significant event, a significant change in the environment in which the business operates or if the expected future undiscounted cash flows become less than the carrying amount of the asset. We believe that no impairment of long-lived assets existed as of December 31, 2002 and 2003.

      Included in other assets are the costs of noncompetition agreements, which are deferred and amortized on a straight-line basis according to the terms of the agreements over 5 to 10 years. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, goodwill amortization ceased on December 31, 2001. We continually evaluate whether events and circumstances have occurred that indicate that the value of goodwill has been impaired. In accordance with SFAS No. 142, goodwill is evaluated for possible impairment on an annual basis, based on a two-step process. The first step is to compare the fair value of the reporting unit

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

      Effective January 1, 1996, we adopted the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” We have elected to continue to account for employee stock options at intrinsic value, in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” with disclosure of the effects of fair value accounting on net income and earnings per share on a pro forma basis for the years ended December 31, 2001, 2002 and 2003.

      In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”(“FIN 45”). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and quarterly financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 does not prescribe a specific approach for subsequently measuring the guarantor’s recognized liability over the term of the related guarantee. This Interpretation also incorporates, without change, the guidance in FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others”, which is being superseded. We have adopted the disclosure provisions of this pronouncement as of December 31, 2002. The adoption of the financial provisions of this pronouncement on January 1, 2003 did not have a material effect on the results of the Company.

      In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation” (“SFAS 148”), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amended disclosure provisions are effective for fiscal years ending after December 15, 2002 and we have adopted the amended disclosure provisions at December 31, 2002. We have not decided whether or not we will voluntarily change to the fair value based method of accounting for stock-based employee compensation at this time.

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

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

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

Forward-Looking Statements and Risk Factors

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

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

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Quarterly Results

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

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

Location of Financial Statements

      The consolidated financial statements furnished in connection with this Report are attached immediately following Part IV.

      Effective as of July 31, 2002, our Board of Directors, upon recommendation of its Audit Committee, engaged PricewaterhouseCoopers LLP (“PwC”) as our auditors, to replace Arthur Andersen LLP, which was ceasing operations.

      During the two most recent fiscal years immediately preceding our engagement of PwC and the interim period through July 31, 2002, neither we, nor anyone on our behalf consulted with PwC regarding any of the matters or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.

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

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

PART III

      (a) Directors. The information with respect to directors required by this item is incorporated herein by reference from our Proxy Statement dated March 12, 2004 for the Special Meeting in Lieu of Annual Meeting of Shareholders to be held on April 13, 2004 (the “2004 Proxy Statement”).

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

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

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

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

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

PART IV

Item 15.     Exhibits, Financial Statement Schedules and Reports on Form 8-K

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

	(1) The financial statements set forth in the list below are filed as part of this Report.
	(2) The financial statement schedules set forth in the list below are filed as part of this Report.
	(3) Exhibits filed herewith or incorporated herein by reference are set forth in Item 15(c) below.

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

      Schedule II: Valuation and Qualifying Accounts

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

      (b) Reports on Form 8-K.

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

      (c) Exhibits.

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

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      All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not material and therefore have been omitted.

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and

      In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of National Dentex Corporation and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for each of the two years in the period ended December 31, 2003 listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The consolidated financial statements of the Company listed in the accompanying index for the year ended December 31, 2001 were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those consolidated financial statements in their report dated February 8, 2002. In addition, the financial statement schedule listed in the accompanying index for the year ended December 31, 2001 was audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on that financial statement schedule in their report dated February 8, 2002.

      As disclosed in Note 4, the Company changed the manner in which it accounts for goodwill and other intangible assets upon adoption of the accounting guidance of Statement of Financial Accounting Standards No. 142 effective on January 1, 2002.

      As discussed above, the consolidated financial statements of the Company for the year ended December 31, 2001 were audited by other independent accountants who have ceased operations. As described in Note 4, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, which was adopted by the Company as of January 1, 2002. We audited the transitional disclosures for 2001 in Note 4. In our opinion, the transitional disclosures for 2001 in Note 4 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

	PricewaterhouseCoopers LLP

Boston, Massachusetts

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The following report is a copy of the report previously issued by Arthur Andersen LLP

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of National Dentex Corporation:

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

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

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

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

	ARTHUR ANDERSEN LLP

Boston, Massachusetts

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

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

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