ZILA Zila (MM)

Zila, Inc. (Nasdaq:ZILA) today reported financial results for its 2008 third quarter ended on April 30, 2008. For all periods presented, financial results exclude results of operations for businesses divested during fiscal 2007, which are now accounted for as discontinued operations. Zila divested its nutraceuticals business unit and Peridex� brand in the fiscal 2007 first quarter and fourth quarter, respectively. In addition, the company completed the acquisition of Pro-Dentec in November 2006. Accordingly, fiscal 2007 year-to-date financial results include only five months of Pro-Dentec's results of operations. Fiscal 2008 Third Quarter Results -- Net revenues increased 7% to $11.2 million compared with $10.5 million for the second quarter of fiscal 2008 and 3% compared with $10.9 million for the prior year third quarter. Sales of ViziLite� Plus grew 13% to $3.6 million compared with the preceding quarter and 41% compared with the third quarter of fiscal 2007, marking the seventh consecutive quarter of revenue growth. During the quarter ended April 30, 2008, Zila�s re-engineered professional sales and marketing team completed training on the company�s entire product offering. As a result of these actions, net revenues for the last month of the quarter increased 24% over the same month in the prior year. -- Gross profit grew to $6.8 million, or 61% of net revenues, from $6.7 million, or 61% of net revenues, in the third quarter of fiscal 2007, due to higher sales of ViziLite� Plus. -- Marketing and selling expense increased to $6.0 million compared with $4.5 million in the third quarter of fiscal 2007, reflecting additional national sales representatives and an increased number of seminar programs as well as $500,000 for the termination of a marketing contract. -- General and administrative expense was $3.3 million compared with $2.7 million for the third quarter of fiscal 2007. The increase primarily was due to a reversal of accrued bonuses in the third quarter of the prior-year, increased costs related to Pro-Dentec�s operations, including professional fees incurred for Sarbanes Oxley compliance, and investment banking expenses that were incurred to explore financing alternatives. -- Research and development (R&D) expense was $247,000 compared with $2.4 million for the third quarter of fiscal 2007. R&D in last year�s third quarter was primarily comprised of costs associated with the OraTest� regulatory program. In the first quarter of fiscal 2008, the company closed enrollment in the OraTest� clinical trial and reduced expenditures for the regulatory program. -- Loss from continuing operations was $4.4 million, or $0.07 per share, essentially unchanged from the third quarter of fiscal 2007. -- Cash and cash equivalents at April 30, 2008 were $3.5 million compared with $14.9 million at July 31, 2007. The decrease over the first nine months of fiscal 2008 reflects cash used in operations of $8.8 million, the repurchase of $1.4 million of common stock and warrants related to the restructuring of the company's senior convertible notes in August 2007, $300,000 of principal payments on debt and $900,000 for investing activities, primarily related to capital expenditures for new systems and equipment. Working capital was $5.9 million at April 30, 2008 compared with $14.3 million at July 31, 2007. Recent Business Growth Initiatives -- In April 2008, the U.S. Food and Drug Administration (�FDA�) granted 510(k) clearance to market ViziLite Eyewear. ViziLite Eyewear is reusable filtered eyewear to be worn by a health care professional to eliminate ambient light outside of the wavelength transmission range of the ViziLite chemiluminescent light source while performing an oral exam under chemiluminescence when a darkened room is not available. ViziLite Eyewear, which helps health care professionals administer ViziLite� Plus in less than ideal lighting environments, is marketed by the company�s direct sales force. -- In May 2008, ViziLite� Plus was launched in the United Kingdom at the British Dental Conference and Exhibition, the British Dental Association�s annual conference. The company selected Panadent Limited, a leading supplier of dental products in the United Kingdom and Ireland, as its exclusive distributor for this product in those markets. Zila has an active international expansion effort underway, as evidenced by recent authorization to sell ViziLite� Plus in Canada, the United Kingdom and the European Union. -- On June 3, 2008 the Company�s senior note EBITDA debt covenants were modified to reduce the required quarterly cash balance by $1 million and to provide for one quarter of positive EBITDA no later that July 31, 2009. This amendment, coupled with other factors, addressed the substantial doubt about the Company�s ability to continue as a �going concern� and allowed the removal of the going concern language that appeared in its Form 10-Q for the fiscal 2008 second quarter. -- Two major dental insurance carriers have recently added the ViziLite� Plus examination to their covered services. Guardian, Humana, United Healthcare and Northeast Delta Dental are now actively covering ViziLite� Plus. The company continues to seek additional carriers to provide coverage for ViziLite Plus. �We�ve made solid progress on a number of operational fronts and have our sights firmly set on continuing to grow the business and attaining profitability,� said David Bethune, chairman and chief executive officer. �We believe the expanding markets for our products, combined with the recently announced cost reductions and modifications to our loan agreement, positions the company for long term success.� Nine Months Ended April 30, 2008 Net revenues increased 80% to $33.2 million compared with $18.4 million for the first nine months of fiscal 2007. This growth was largely driven by increased ViziLite� Plus net revenues which resulted from selling directly to dental offices through the company�s national sales organization. Gross margin rose to 60% from 58% in the comparable period of fiscal 2007. Net loss attributable to common shareholders was $14.1 million, or $0.23 per share, compared with a net loss attributable to common shareholders of $10.7 million, or $0.20 per share, in the year ago period. Financial results in the prior year period included an $11.0 million pre-tax gain from the sale of the company�s Nutraceuticals Business Unit, offset by expenses related to the company�s BDCF Credit Facility including the non-cash loss of $3.8 million for the write-off of unamortized debt financing costs and debt discount upon the repayments of the BDCF Credit Facility and the Industrial Revenue Bonds. Conference Call Dial-In Information Zila will host a teleconference and webcast to review the results of operations for the third quarter ended April 30, 2008 today at 1:30 p.m. PT (4:30 p.m. ET). To participate in the teleconference, please call (800) 257-7063 (domestic) or (303) 262-2141 (international) approximately 10 minutes prior to the above start time. The conference call may also be heard by interested parties through a live audio Internet broadcast by visiting the "Investors" in the "Investor Relations Home" section of Zila's website, www.zila.com and www.opencompany.info. For those unable to listen to the live broadcast, a playback of the webcast will be available at the same website beginning shortly after the call. A telephonic replay will be available for approximately 48 hours following the conclusion of the call by dialing (800) 405-2236 (domestic) or (303) 590-3000 (international), and entering passcode 11115335#. About Zila, Inc. Zila, Inc. is a fully integrated oral diagnostic company dedicated to the prevention, detection and treatment of oral cancer and periodontal disease. ViziLite� Plus, the Company's flagship product for the early detection of oral abnormalities that could lead to cancer, is the first and only adjunctive medical device cleared by the FDA for use in a population at increased risk for oral cancer. In addition, Zila designs, manufactures and markets a suite of proprietary products sold exclusively and directly to dental professionals for periodontal disease, including the Rota-dent� Professional Powered Brush, the Pro-Select Platinum� ultrasonic scaler and a portfolio of oral pharmaceutical products for both in-office and home-care use. This press release may contain 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 affect revenue, profitability, cash flows and capital needs. There can be no assurance that any forward-looking statements contained in this press release will, in fact, transpire or prove to be accurate. For a more detailed description of these and other cautionary factors that may affect Zila's future results, please refer to Zila's Form 10-K for its fiscal year ended July 31, 2007 and Zila�s Form 10-Q for the quarter ended April 30,2008. For more information about the Company and its products, please visit www.zila.com. Financial Tables Follow ZILA, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (in thousands - except for per share data) � � � � Three Months Ended April 30, Nine Months Ended April 30, � 2008 � � 2007 � � 2008 � � 2007 � � Net revenues $ 11,245 $ 10,894 $ 33,176 $ 18,383 Cost of products sold � 4,438 � � 4,231 � � 13,264 � � 7,758 � � Gross profit 6,807 6,663 19,912 10,625 � Operating costs and expenses: Marketing and selling 6,046 4,470 16,564 9,483 General and administrative 3,281 2,683 9,883 9,566 Research and development 247 2,388 2,237 5,741 Depreciation and amortization � 952 � � 909 � � 2,811 � � 1,998 � � Loss from operations � (3,719 ) � (3,787 ) � (11,583 ) � (16,163 ) � Other income (expense): Interest income 26 120 224 397 Interest expense (786 ) (878 ) (2,354 ) (6,480 ) Derivative income (expense) - - (24 ) 1,059 Other income (expense) � 2 � � (47 ) � (1 ) � (29 ) � Other expense - net � (758 ) � (805 ) � (2,155 ) � (5,053 ) � Loss from continuing operations before income taxes (4,477 ) (4,592 ) (13,738 ) (21,216 ) Income tax benefit � 34 � � 191 � � 23 � � 4,001 � � Loss from continuing operations � (4,443 ) � (4,401 ) � (13,715 ) � (17,215 ) � Income (loss) from discontinued operations (2 ) 303 (321 ) (408 ) Gain (loss) on disposal of discontinued operations - (19 ) - 10,974 Income tax expense � - � � (191 ) � - � � (4,068 ) � Total income (loss) from discontinued operations � (2 ) � 93 � � (321 ) � 6,498 � � Net loss (4,445 ) (4,308 ) (14,036 ) (10,717 ) Preferred stock dividends � 10 � � 10 � � 29 � � 29 � � Net loss attributable to common shareholders $ (4,455 ) $ (4,318 ) $ (14,065 ) $ (10,746 ) � Basic and diluted net income (loss) per common share: Loss from continuing operations $ (0.07 ) $ (0.07 ) $ (0.22 ) $ (0.32 ) Income (loss) from discontinued operations � - � � - � � (0.01 ) � 0.12 � � Net loss attributable to common shareholders $ (0.07 ) $ (0.07 ) $ (0.23 ) $ (0.20 ) � Weighted average common shares outstanding - basic and diluted � 61,873 � � 62,117 � � 61,564 � � 54,411 � ZILA, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) � � April 30, July 31, 2008 2007 (Unaudited) � Current assets $ 15,330 $ 24,854 Property and equipment - net 5,721 6,219 Goodwill and other intangible assets - net 29,737 31,610 Other assets � 911 � 1,198 � Total assets $ 51,699 $ 63,881 � Current liabilities $ 9,394 $ 10,568 Long-term liabilities 8,542 7,334 Shareholders' equity � 33,763 � 45,979 � Total liabilities and shareholders' equity $ 51,699 $ 63,881