ZILA Zila (MM)

Zila, Inc. (Nasdaq GM: ZILA) announced results for its third quarter of fiscal 2007 for the period ended April 30, 2007. The increase in the Company�s quarterly revenue was driven by growth in ViziLite� Plus coupled with a full quarter of Professional Dental Technologies, Inc. ("Pro-Dentec") revenues. The Pro-Dentec acquisition provided Zila with a national sales force that continues to strengthen the Company's oral cancer screening business. The third quarter and prior period results for continuing operations now exclude the results for the Peridex� brand following its previously announced sale on May 31, 2007. All assets and liabilities related to the Peridex� brand have been reclassified to assets and liabilities of discontinued operations. Highlights for the Quarter Include: -- Net revenues for continuing operations increased to $10.8 million compared to net revenues of $1.2 million for the 2006 fiscal third quarter. The increase was due primarily to the acquisition of Pro-Dentec and its contribution to ViziLite� Plus with TBlue630�revenue growth, which increased 112% over the third quarter of 2006 to $2.5 million. -- Quarterly revenues increased 52% to $10.8 million compared to the second quarter of fiscal 2007, which is attributable to the inclusion of a full quarter of revenues for Pro-Dentec and the continued growth of ViziLite Plus, which increased 132%. -- Gross margin improved to 61% in the third quarter compared to 42% in the same period last year. Prior year gross margins reflect the distributor-only business model and the impact of discounts and incentives during the initial launch phase of ViziLite Plus. -- Marketing and selling expenses were $4.3 million for the third quarter compared to $1.8 million in the same period last year. The increase primarily reflects the acquisition of the Pro-Dentec selling and marketing capabilities. As a percentage of net revenues, marketing and selling expenses were 40% for the third quarter compared to 146% for the comparable period last year. The improvement versus a year ago reflects primarily the leverage gained from the addition of ViziLite Plus to the existing revenue base of Pro-Dentec. -- General and administrative expenses were $2.7 million, or 24% of net revenues for the three month period compared to $2.7 million or 218% of net revenue for the third quarter last year. The current quarter�s expenses reflect the addition of Pro-Dentec, but also benefit from a $0.8 million reduction in the Company�s incentive compensation expense. The fiscal fourth quarter will be further negatively impacted by ongoing systems integration costs at Pro-Dentec. -- Research and development expense decreased 3% to $2.4 million in the third quarter this fiscal year compared with $2.5 million in the comparable quarter a year ago. These expenses include, in both periods, the expenses for the OraTest� Phase III clinical trial and other related regulatory program expenses. The prior year also included the expense to re-commission the Company�s Phoenix-based tolonium chloride manufacturing facility in support of TBlue630 and OraTest. -- Depreciation and amortization expense for the quarter increased to $0.9 million from $0.4 million a year ago. The increase primarily reflects the acquisition of Pro-Dentec and its related property, plant and equipment in support of its manufacturing, distribution and administrative operations as well as the acquired intangibles. -- Loss from continuing operations for the fiscal third quarter of this year was reduced to $4.4 million from $7.6 million a year ago and $6.4 million in the immediately preceding quarter. The improvement compared to the second quarter of fiscal 2007 was due primarily to continued revenue growth coupled with lower relative operating expenses as a percent of net revenues, 96% in the current quarter versus 139% in the preceding quarter. Versus a year ago, the acquisition of Pro-Dentec was the primary contributor to the lower losses. -- Net loss for the quarter, inclusive of discontinued operations, was $4.3 million or 7 cents per common share versus a loss of $8.1 million or 18 cents per common share a year ago. Based upon currently available funds, we may be required to delay, scale back or eliminate a number of ongoing or planned programs. Failure to successfully execute upon these and other strategies may raise substantial doubt about the Company�s ability to continue as a going concern. For a fuller discussion of the above matters, see the Company�s Quarterly Report on Form 10-Q for the quarter ended April 30, 2007. Nine Months Ended April 30, 2007 Net revenues from continuing operations for the nine months ended April 30, 2007 increased to $18.1 million, compared to $2.7 million for the same period of fiscal 2006. The increase was due primarily to the acquisition of Pro-Dentec and its positive contribution to ViziLite Plus revenue growth, which increased 48% versus the same nine-month period a year ago. Gross margin for the nine-month period was 57% versus 42% a year ago reflecting the prior year�s distributor-only business model and the impact of discounts and incentives during the initial launch phase of ViziLite Plus. Net loss, inclusive of discontinued operations, for the nine months ended April 30, 2007, was $10.7 million versus $20.4 million a year ago or losses of 20 cents and 45 cents per common share, respectively. The improvement versus a year ago reflects primarily a lower loss from operations and the gain from the disposition of businesses offset by higher interest or financing expense. Conference Call Dial-In Information The Company will host a teleconference and webcast, which is scheduled to begin at 1:30 p.m. PT (4:30 p.m. ET) on June 19, 2007. To participate in the teleconference, please call toll-free 866-585-6398 (or 416-849-9626 for international callers) approximately 10 minutes prior to the above start time. You may also listen to the teleconference live via the Internet by visiting the �Event Calendar� in the �News� section of Zila�s website, www.zila.com. For those unable to attend, the website will host an archive of the call. A telephone playback will be available for 48 hours beginning at 9:30 p.m. PST on June 21, 2007. The playback can be accessed by calling 866-245-6755 (or 416-915-1035 for international callers) and providing passcode 375491. About Zila, Inc. Zila, Inc., headquartered in Phoenix, is a cancer screening company focused on oral cancer: Zila is dedicated to establishing ViziLite� Plus for the early detection of oral abnormalities that could lead to cancer, with an initial focus on the dental market through Pro-Dentec, a leading designer, manufacturer and marketer of Soft Tissue Management (STM�) products. Sold exclusively and directly to dental professionals, Pro-Dentec's core products include the Rota-dent� Professional Powered Brush, the Pro-Select3� Piezo-Ultrasonic Scaler System and a suite of pharmaceutical STM� products for both in-office and home-care use. For more information about Zila, visit www.zila.com. Safe Harbor Statement This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based largely on Zila's expectations or forecasts of future events, can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond the Company's control. Therefore, actual results could differ materially from the forward-looking statements contained herein. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this press release will, in fact, transpire or prove to be accurate, and we disclaim any obligation to update or revise any such forward-looking statements. For a more detailed description of these and other cautionary factors that may affect Zila's future results, please refer to the documents we file with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended July 31, 2006, our Current Report on Form 8-K filed on December 28, 2006, and our Form 10-Q for the quarter ended April 30, 2007. ZILA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited (in thousands, except per share amounts) � Three months ended April 30, Nine months ended April 30, 2007� � 2006� 2007� 2006� Net revenues $ 10,750� $ 1,218� $ 18,147� $ 2,701� Cost of products sold � 4,231� � 710� � 7,758� � 1,566� � Gross profit 6,519� 508� 10,389� 1,135� � Operating costs and expenses: Marketing and selling 4,326� 1,782� 9,248� 4,088� General and administrative 2,682� 2,651� 9,567� 7,600� Research and development 2,389� 2,452� 5,741� 5,739� Depreciation and amortization � 909� � 369� � 1,997� � 1,025� � � 10,306� � 7,254� � � 26,553� � � 18,452� � Loss from operations � (3,787� ) � � (6,746� ) � (16,164� ) � (17,317� ) � � Other income (expense): Interest income 120� 64� 397� 201� Interest expense (878� ) (622� ) (6,480� ) (640� ) Derivative income �� (98� ) 1,059� (98� ) Other expense � (47� ) � (247� ) � (29� ) � (315� ) � � (805� ) � (903� ) � (5,053� ) � (852� ) � � Loss from continuing operations before income taxes (4,592� ) (7,649� ) (21,217� ) (18,169� ) Income tax (expense) benefit � 191� � �� � 4,001� � (4� ) � Loss from continuing operations � (4,401� ) � � (7,649� ) � (17,216� ) � (18,173� ) � (Loss) gain from disposal of operations (20� ) �� 10,974� �� Income (loss) from discontinued operations 303� (426� ) (408� ) (2,150� ) Income tax expense � (191� ) � �� � (4,068� ) � �� Income (loss) from discontinued operations � 93� � (426� ) � 6,498� � (2,150� ) � Net loss (4,308� ) (8,075� ) (10,718� ) (20,323� ) Preferred stock dividends � 10� � 10� � 29� � 29� � Net loss attributable to common shareholders $ (4,318� ) � $ (8,085� ) $ (10,747� ) $ (20,352� ) � Basic and diluted net income (loss) per common share: Loss from continuing operations $ (0.07� ) $ (0.17� ) $ (0.32� ) $ (0.40� ) Income (loss) from discontinued operations � (0.00� ) � (0.01� ) � 0.12� � (0.05� ) � Net loss $ (0.07� ) $ (0.18� ) $ (0.20� ) $ (0.45� ) � Weighted average shares outstanding 62,117� 45,734� 54,411� 45,684� � Balance Sheet Data Unaudited (in thousands) � � April 30, July 31, � 2007� � 2006� � Cash and cash equivalents $ 9,652� $ 3,958� Other current assets 11,445� 19,012� Property - net 6,100� 1,684� Intangibles - net 32,549� 6,395� Other � 5,458� � 25,315� � Total assets $ 65,204� $ 56,364� � � Current liabilities $ 8,801� $ 29,824� Long-term liabilities 6,815� 3,289� Shareholders equity � 49,588� � 23,251� � Total liabilities and equity $ 65,204� $ 56,364�