<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

(Mark One)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the quarterly period ended January 31, 1999 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 0-17521                                                

                                    ZILA, INC
             (Exact Name of registrant as specified in its charter)

             Delaware                                  No. 86-0619668           
    (State or Other Jurisdiction                 (IRS Employer Identification
number) corporation or organization)

5227 North 7th Street, Phoenix, Arizona                   85014 
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code (602)266-6700 (former name,
 former address and former fiscal year, if changed since last report)

         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   [ ].     

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

         The number of shares of the Company's common stock outstanding at
January 31, 1999 was 38,640,082 shares.

                                                                      Exhibit 17
                                                                  Total pages 17
<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                         Page no.
<S>                                                                                                     <C>
PART   I     FINANCIAL INFORMATION

   Item 1.  Financial Statements (Unaudited)

             Condensed consolidated balance sheets as of January 31, 1999 and July 31, 1998
                                                                                                            3

             Condensed consolidated statements of operations for the quarter and six months ended
             January 31, 1999 and 1998                                                                      4

             Condensed consolidated statements of cash flows for six months ended January 31, 1999
             and 1998                                                                                       5

             Notes to condensed consolidated financial statements                                          6-9

   Item 2.  Management's discussion and analysis of financial condition and results of operations
                                                                                                          10-14

PART II.       OTHER INFORMATION

   Item 1.  Legal proceedings                                                                              15

   Item 5.  Other information                                                                              16

   Item 6.  Exhibits and reports on Form 8-K                                                               16

             SIGNATURES                                                                                    17
</TABLE>
<PAGE>   3
ZILA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS - (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       January            July
ASSETS                                                                                31, 1999          31, 1998
                                                                                    ------------      ------------
<S>                                                                                 <C>               <C>         
CURRENT ASSETS:
  Cash and cash equivalents                                                         $  2,124,622      $  5,241,201
  Trade receivables - net                                                              8,379,698         7,161,240
  Inventories                                                                         12,170,461        11,550,009
  Prepaid expenses and other current assets                                            1,710,157         1,254,258
  Deferred income taxes                                                                3,667,030         2,785,430
                                                                                    ------------      ------------

         Total current assets                                                         28,051,968        27,992,138
                                                                                    ------------      ------------

PROPERTY AND EQUIPMENT - Net                                                           5,623,154         4,955,861
PURCHASED TECHNOLOGY RIGHTS - Net                                                      6,255,634         6,473,854
GOODWILL - Net                                                                        16,128,382        17,009,914
TRADEMARKS - Net                                                                      11,149,921        11,131,925
OTHER INTANGIBLE ASSETS - Net                                                          2,345,133         2,173,352
OTHER ASSETS                                                                             148,817           126,833
                                                                                    ------------      ------------


TOTAL                                                                               $ 69,703,009      $ 69,863,877
                                                                                    ============      ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                                  $  3,448,579      $  4,917,626
  Accrued liabilities                                                                  3,046,810         2,251,105
  Deferred revenue                                                                       787,983           567,956
  Short-term borrowings                                                                   68,903            87,598
  Current portion of long-term debt                                                      987,064           952,957
                                                                                    ------------      ------------

         Total current liabilities                                                     8,339,339         8,777,242

LONG-TERM DEBT - Net of current portion                                                1,539,898         1,355,547
                                                                                    ------------      ------------

          Total liabilities                                                            9,879,237        10,132,789
                                                                                    ------------      ------------

SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK:
  Issued 30,000; outstanding 12,660 shares (January 31, 1999) and
  28,800 shares (July 31, 1998); liquidation preference value: $1,220 per share       14,863,120        33,801,930
                                                                                    ------------      ------------

SHAREHOLDERS' EQUITY:
  Preferred stock, $.001 par value - authorized
   2,500,000 shares; issued 30,000 shares of Series A
   Preferred Stock
  Common stock, $.001 par value - authorized,
   65,000,000 shares; issued 38,640,082 shares
   (January 31, 1999) and 34,743,575 shares (July 31, 1998)                               38,640            34,744
  Capital in excess of par value                                                      63,296,948        43,877,560
  Deficit                                                                            (18,374,511)      (17,982,721)
                                                                                    ------------      ------------

                                                                                      44,961,077        25,929,583
  Less 42,546 common shares held by wholly-owned
    subsidiary (at cost)                                                                    (425)             (425)
                                                                                    ------------      ------------

        Total shareholders' equity                                                    44,960,652        25,929,158
                                                                                    ------------      ------------

TOTAL                                                                               $ 69,703,009      $ 69,863,877
                                                                                    ============      ============
</TABLE>

    See notes to condensed consolidated financial statements.


                                       3
<PAGE>   4
 ZILA, INC. AND SUBSIDIARIES                                               

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 QUARTERS AND SIX MONTHS ENDED JANUARY 31, 1999 AND 1998


<TABLE>
<CAPTION>
                                                  Quarters ended                     Six months ended
                                          ------------------------------      ------------------------------
                                           January 31,       January 31,       January 31,       January 31,
                                              1999              1998              1999              1998
                                          ------------      ------------      ------------      ------------
<S>                                       <C>               <C>               <C>               <C>         
REVENUES                                  $ 18,121,619      $ 16,940,983      $ 34,624,427      $ 27,741,165
                                          ------------      ------------      ------------      ------------

OPERATING COSTS AND EXPENSES:
  Cost of products sold                      8,625,052         8,118,806        16,483,698        14,696,064
  Selling, general and administrative        8,390,430         6,500,074        15,221,291        10,287,778
  Research & development                     1,386,347           779,710         2,167,438         1,351,149
  Depreciation and amortization                855,555           917,626         1,741,873         1,250,608
                                          ------------      ------------      ------------      ------------
                                            19,257,384        16,316,216        35,614,300        27,585,599
                                          ------------      ------------      ------------      ------------

INCOME (LOSS) FROM OPERATIONS               (1,135,765)          624,767          (989,873)          155,566
                                          ------------      ------------      ------------      ------------

OTHER INCOME (EXPENSES):
  Interest income                               56,373            73,516           133,177           124,649
  Interest expense                             (60,758)          (95,539)         (130,980)         (107,158)
  Other expense                                 (7,148)          (20,745)             (114)          (20,848)
                                          ------------      ------------      ------------      ------------

                                               (11,533)          (42,768)            2,083            (3,357)
                                          ------------      ------------      ------------      ------------

INCOME (LOSS) BEFORE INCOME
  TAX BENEFIT                               (1,147,298)          581,999          (987,790)          152,209

INCOME TAX BENEFIT                                               700,000           596,000           700,000
                                          ------------      ------------      ------------      ------------

NET INCOME (LOSS)                           (1,147,298)        1,281,999          (391,790)          852,209

PREFERRED STOCK DIVIDEND REQUIREMENT:
  SERIES A EMBEDDED DIVIDEND (NOTE 7)                          3,154,692                           3,154,692
                                          ------------      ------------      ------------      ------------

NET LOSS AVAILABLE TO COMMON
  SHAREHOLDERS                            $ (1,147,298)       (1,872,693)     $   (391,790)       (2,302,483)
                                          ============      ============      ============      ============

BASIC AND DILUTED LOSS PER SHARE          $      (0.03)     $      (0.05)     $      (0.01)     $      (0.07)
                                          ============      ============      ============      ============


BASIC AND DILUTED SHARES OUTSTANDING        37,655,846        34,058,097        36,142,529        33,381,442
                                          ============      ============      ============      ============
</TABLE>


     See notes to condensed consolidated financial statements.


                                       4
<PAGE>   5
ZILA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JANUARY 31, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                                 1999              1998
                                                                             ------------      ------------
<S>                                                                          <C>               <C>         
OPERATING ACTIVITIES:
     Net income (loss)                                                       $   (391,790)     $    852,209
     Adjustments to reconcile net income (loss) to
         net cash used in operating activities:
         Depreciation and amortization                                          1,741,873         1,250,608
         Discount on contractual obligation                                        69,666            85,404
         Deferred income taxes                                                   (631,600)         (700,000)
         Change in assets and liabilities:
             Receivables - net                                                   (967,581)          569,611
             Inventories                                                         (620,452)       (1,058,433)
             Prepaid expenses and other assets                                   (728,760)         (412,434)
             Accounts payable and accrued expenses                               (673,342)         (107,460)
             Deferred revenue                                                     220,027            95,817
                                                                             ------------      ------------
               Net cash (provided by) used in operating activities             (1,981,959)          575,322
                                                                             ------------      ------------
INVESTING ACTIVITIES:
     Purchases of property and equipment                                       (1,149,723)         (715,653)
     Acquisition, net of cash acquired                                                          (33,595,322)
     Purchases of intangible assets                                              (349,468)         (249,349)
                                                                             ------------      ------------
         Net cash used in investing activities                                 (1,499,191)      (34,560,324)
                                                                             ------------      ------------
FINANCING ACTIVITIES:
     Net (payments) proceeds from short-term borrowings                           (18,695)           43,764
     Net proceeds from issuance of common stock                                   234,474        10,195,863
     Net proceeds from issuance of preferred stock                                               28,647,250
     Net proceeds from long-term debt                                           1,200,000            93,753
     Principal payments on long-term debt                                      (1,051,208)          (19,801)
                                                                             ------------      ------------
         Net cash provided by financing activities                                364,571        38,960,829
                                                                             ------------      ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                           (3,116,579)        4,975,827
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                               $  5,241,201      $  2,071,563
                                                                             ------------      ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                     $  2,124,622      $  7,047,390
                                                                             ============      ============
CASH PAID FOR INTEREST                                                       $     61,314      $     22,391
                                                                             ============      ============
CASH PAID FOR INCOME TAXES                                                   $       --        $       --
                                                                             ============      ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
     FINANCING ACTIVITIES FOR 1999:

     Income tax benefit attributable to exercise of common stock options     $    250,000

     Conversion of Convertible Redeemable Preferred stock                    $ 18,938,810
</TABLE>

     See notes to condensed consolidated financial statements 


                                       5
<PAGE>   6
                           ZILA, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.       The condensed consolidated financial statements include the accounts of
         Zila, Inc. and its wholly-owned subsidiaries, Zila Pharmaceuticals,
         Inc., Zila International Inc., Zila Ltd., Bio-Dental Technologies
         Corporation ("Bio-Dental"), Cygnus Imaging, Inc. ("Cygnus"), and Oxycal
         Laboratories, Inc. ("Oxycal"). All significant intercompany balances
         and transactions are eliminated in consolidation.

         In the opinion of management of Zila, Inc. and Subsidiaries ("Zila" or
         the "Company"), all adjustments, consisting of normal recurring
         accruals, considered necessary for a fair presentation have been
         included in the condensed consolidated financial statements. The
         results of operations for the interim period are not necessarily
         indicative of the results that may be expected for the entire year. 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.

2.       In March 1997, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
         Per Share", which is effective for financial statements for both
         interim and annual periods ending after December 15, 1997. SFAS No.
         128, requires a reconciliation of the numerator and denominator of
         basic and diluted earnings per share as follows:

<TABLE>
<CAPTION>
                                        Quarter ended                     Six months ended
                                          January 31,                        January 31,
                                    1999              1998              1999              1998
                                ------------      ------------      ------------      ------------
<S>                             <C>               <C>               <C>               <C>         
Net loss available
   to common shareholders       $ (1,147,298)     $ (1,872,693)     $   (391,790)     $ (2,302,483)
Average outstanding
   common shares                  37,655,846        34,058,097        36,142,529        33,381,442
Basic and dilutive net loss
   per share                    $      (0.03)     $      (0.05)     $      (0.01)     $      (0.07)
</TABLE>

         Since a loss was incurred for the quarter and six months ended January
         31, 1999 and 1998, options and warrants to purchase shares of common
         stock were not included in the computation of dilutive net income per
         share because their effect would be antidilutive.


                                        6
<PAGE>   7
3. Inventories consist of the following:

<TABLE>
<CAPTION>
                       January 31,        July 31,
                           1999             1998
                       -----------      -----------
<S>                    <C>              <C>        
Finished goods         $ 8,018,444      $ 7,048,539
Raw materials            4,457,746        4,807,214
Inventory reserves        (305,729)        (305,744)
                       -----------      -----------
                       $12,170,461      $11,550,009
                       ===========      ===========
</TABLE>

4.       In November 1998, the Food & Drug Administration ("FDA") notified the
         Company that the OraTest(R) New Drug Application ("NDA") was being
         given "priority review," which targeted agency review within six months
         from September 3, 1998, the date when the Company provided additional
         data to the FDA. On January 13, 1999, the FDA's Oncologic Drugs
         Advisory Committee (the "Committee") met to review the OraTest(R) NDA
         and recommended, among other things, that the FDA not approve the NDA
         as submitted. Subsequent to the Committee meeting, Company
         representatives engaged in a dialog with the FDA, culminating in a
         meeting at the agency on March 1, 1999.

         On March 3, 1999, the Company received an action letter from the FDA
         outlining certain deficiencies in the OraTest(R) NDA that prevented the
         FDA from approving the product at that time. The FDA's letter detailed
         a procedure for amending the NDA to rectify those matters. Based on
         discussions at the March 1, 1999 meeting with the FDA, the Company is
         preparing to contract with a newly identified clinical research group
         for an additional clinical study. The researchers will commence the
         study after the FDA has completed its review of the study protocol that
         the researchers will submit to the agency. Upon completion of the new
         study, the Company will use the resulting data in its planned amendment
         to the NDA. Also, as a result of the March 1st meeting, the Company
         will promptly terminate the 12-site clinical study begun in 1995, and
         all the data from this study will be submitted to the agency.

5.       Deferred income taxes reflect the tax effect of temporary differences
         between the amounts of assets and liabilities recognized for financial
         reporting and tax purposes. In the past, the Company had fully offset
         its net deferred tax asset with a valuation allowance due to the
         Company's lack of earnings history. However, in the quarter ended
         October 31, 1998, the Company had profitable operations and recorded an
         income tax benefit of $910,000 ($250,000 of which was attributable to
         the exercise of common stock options and therefore was credited to
         capital in excess of par value), partially offset by an income tax
         expense of $64,000 related to the first quarter of fiscal year 1999.
         For the quarter ended January 31, 1998, the Company recorded an income
         tax benefit of $1,000,000 ($300,000 of which was attributable to the
         exercise of common stock options and therefore was credited to capital
         in excess of par value).


                                        7
<PAGE>   8
6.       In June 1997, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
         Comprehensive Income, and SFAS No. 131, Disclosures about Segments of
         an Enterprise and Related Information. SFAS No. 130 requires that an
         enterprise (a) classify items of other comprehensive income by their
         nature in a financial statement and (b) display the accumulated balance
         of other comprehensive income separately from retained earnings and
         additional capital in the equity section of a statement of financial
         position. SFAS No. 131 establishes standards for the way that public
         enterprises report information about operating segments in annual
         financial statements and requires that those enterprises report
         selected information about operating segments in interim financial
         reports to shareholders. It also establishes standards for disclosures
         about products and services, geographic areas and major customers. The
         Company adopted SFAS No. 130 on August 1, 1998. This adoption had no
         material impact on the Company's financial statements. Although SFAS
         No. 131 is effective for fiscal years beginning after December 15,
         1997, disclosures are only required at year end in the initial year of
         adoption.

7.       On November 10, 1997, the Company completed a $30,000,000 financing
         involving the private placement of Series A Convertible Redeemable
         Preferred Stock. Proceeds from the sale were used primarily to acquire
         all the outstanding shares of Oxycal Laboratories, Inc. The Preferred
         Stock is convertible into shares of the Company's common stock at a
         conversion rate based on the price of such common stock at the date of
         issuance. However, if the market price of the Company's common stock
         does not appreciate by a fixed percentage at various measurement dates,
         the holders of the Preferred Stock have the right to receive additional
         shares of the Company's common stock upon conversion, based on a
         repricing formula. Per guidance from the Emerging Issues Task Force,
         the intrinsic value of the beneficial conversion feature of the
         Preferred Stock has been measured and recognized in fiscal year 1998 as
         an embedded dividend and such non-cash embedded dividend has been
         deducted from net income in the accompanying consolidated statement of
         operations to arrive at the amount of net loss available to common
         shareholders. Additionally, because the Preferred Stock has conditions
         for redemption that are not solely within the control of the Company,
         it has been classified outside of permanent equity in the accompanying
         consolidated balance sheet and has been accreted to its redemption
         value. During the first six months of fiscal year 1999, 16,140 shares
         of the Preferred Stock were converted into common stock.

8.       The Company, certain officers of the Company and its subsidiaries, and
         certain members of the Company's Board of Directors are defendants in
         class actions filed between January 25, 1999 and February 19, 1999, all
         of which are currently pending in the United States District Court for
         the District of Arizona consolidated under the caption In re Zila, Inc.
         Securities Litigation, No. CIV 99 0115 PHX EHC. The plaintiffs in these
         cases, who allege to have purchased common stock of the Company and
         options for the purchase of stock of the Company, are seeking class
         certification to represent all persons who purchased securities in the
         Company during the defined class periods and who were allegedly
         damaged. The class periods as defined in the various actions that have
         been consolidated range from February, 1998 at the earliest through
         January 13, 1999 at the latest. The Court has ordered that the
         plaintiffs file a consolidated amended complaint after certain
         procedural steps have occurred. As a result, the Company does not know,
         as of this date, what class period will be reflected in the
         consolidated amended complaint. The plaintiffs allege that in certain
         public statements and filings with the Securities and Exchange
         Commission relating to OraTest(R) Zila and certain of its officers made
         false or misleading statements, concealed material adverse information
         and took other manipulative actions that artificially inflated the
         price of the Company's common stock in violation of the federal
         securities laws.

                                        8
<PAGE>   9
         The plaintiffs in the various class action complaints that have been
         consolidated seek unspecified compensatory damages, attorneys' fees,
         costs, expenses and unspecified equitable and/or injunctive relief. The
         Company and the individual defendants deny the plaintiffs' allegations
         of wrongdoing and intend to vigorously defend themselves in the
         consolidated action.

         Upon consummation of the Company's merger with Bio-Dental, each of the
         outstanding shares of Bio-Dental common stock was converted into .825
         shares of the Company's common stock. Subsequent to the merger, the
         Company's stock transfer agent was presented with a certificate
         purporting to represent 220,000 shares of Bio-Dental common stock which
         did not appear on the records of Bio-Dental's stock transfer agent as
         of the closing date. The Company is currently investigating this matter
         and has not determined whether any shares of the Company's common stock
         are required to be issued in exchange for the shares purportedly
         represented by this certificate.

         The Company occasionally encounters minor litigation as a means to
         resolve disputes, which arise in the ordinary course of business. None
         of these minor lawsuits are believed to be material to the Company's
         ongoing operations or operating results.


                                        9
<PAGE>   10
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

                           ZILA, INC. AND SUBSIDIARIES

COMPANY OVERVIEW:

         Zila is a world-wide manufacturer and marketer of pharmaceutical,
biomedical, dental and nutritional products. The Company has organized its
business into three major operating groups: Pharmaceuticals, Professional
Products and Nutraceuticals. The Pharmaceuticals Group consists of
over-the-counter and prescription products, including the Zilactin(R) family of
over-the-counter products, Peridex(R) prescription mouth rinse, and OraTest(R),
an oral cancer diagnostic system. The Professional Products Group includes Zila
Dental Supply ("Zila Dental"), a national distributor of professional dental
supplies, Cygnus Imaging ("Cygnus"), a manufacturer and marketer of digital
x-ray systems and intraoral cameras, and Practiceworks, a dental practice
management software company. The Nutraceuticals Group is comprised of Oxycal
Laboratories, Inc. ("Oxycal") and its Inter-Cal subsidiary, manufacturers and
distributors of a patented and enhanced form of vitamin C under the trademark
Ester-C(R).

RESULTS OF OPERATIONS:

                  For the quarter ended January 31, 1999, the Company had a net
loss of $1,147,298 compared to net income of $1,281,999 for the quarter ended
January 31, 1998. For the six month period ended January 31, 1999, the Company
had a net loss of $391,790 compared to net income of $852,209 for the six months
ended January 31, 1998.

                  Additionally, as a result of the embedded dividend on the
Series A Preferred Stock issued in November 1997, net income available to common
shareholders for the quarter and six months ended January 31, 1998, has been
reduced by the $3,154,692 accretion of such dividend. When taking into account
the embedded dividend, the Company had a net loss available to common
shareholders of $1,872,693 and $2,302,483 for the quarter and six months ended
January 31, 1998, respectively (see Note 7).

                  Revenues during the second quarter of the current fiscal year
totaled $18,121,619 compared to revenues of $16,940,983 during the second
quarter of the prior fiscal year, a 7.0% increase. The growth in revenues for
the quarter was primarily attributable to a 5% increase in the Professional
Products Group and a 2% increase in the Nutraceuticals Group. For the first six
months of the current fiscal year, revenues were $34,624,427 compared to
$27,741,165 for the same period of the prior fiscal year, a 24.8% increase. The
growth in revenues for the first six months of fiscal year 1999 was primarily
attributable to the Company's acquisitions of Oxycal and Peridex(R) in November
1997, as well as revenue increases in the Professional Products Group.


                                       10
<PAGE>   11
                  In the quarter ended January 31, 1999, cost of products sold
was $8,625,052, a 6.2% increase from $8,118,806 for the quarter ended January
31, 1998. Cost of products sold as a percentage of revenues decreased to 47.6%
in the quarter ended January 31, 1999 from 47.9% in the quarter ended January
31, 1998. For the six months ended January 31, 1999, cost of products sold was
$16,483,698 compared to $14,696,064 for the same period in the prior fiscal
year, an increase of 12.2%. Cost of products sold as a percentage of revenues
decreased to 47.6% for the six months ended January 31, 1999 from 53.0% in the
six months ended January 31, 1998. These decreases in cost of products sold as a
percentage of revenues, are primarily due to lower product costs in the
Nutraceuticals Group. Additional decreases resulted from purchase accounting
adjustments made in the second quarter of fiscal year 1998, which re-valued
inventory acquired in the Oxycal acquisition.

                  Selling, general and administrative expenses increased
$1,890,356 from $6,500,074 in the second quarter of fiscal year 1998 to
$8,390,430 for the same period in fiscal year 1999. The increase for the quarter
ended January 31, 1999 is attributable to increased marketing costs in the
Nutraceuticals Group, selling expense in the Pharmaceuticals Group and corporate
public relations, legal and professional expenses. Selling, general and
administrative expenses increased $4,933,513 from $10,287,778 during the first
six months of fiscal year 1998 to $15,221,291 during the first six months of
fiscal year 1999. This increase is attributable mainly to selling, general and
administrative expenses resulting from the Oxycal and Peridex(R) acquisitions in
the second quarter of fiscal year 1998.

                  Research and development expenses increased $606,637, or
77.8%, from $779,710 in the second quarter of fiscal year 1998 to $1,386,347 for
the same period in fiscal year 1999. For the six months ended January 31, 1999,
research and development expenses were $ 2,167,438 compared to $1,351,149 for
the same period of the prior fiscal year, an increase of $816,289, or 60.4%. The
increases for the quarter and six months ended January 31, 1999 are mainly
related to research and clinical activities associated with OraTest(R) and
Ester-C(R), as well as product development expenses related to digital x-ray
systems and dental practice management software.

                  Depreciation and amortization expenses decreased $62,071 from
$917,626 in the second quarter of fiscal year 1998 to $855,555 for the same
period in fiscal year 1999. At January 31, 1998, the Company had not completed
the process of allocating the excess of assets over liabilities assumed related
to the Oxycal acquisition. The decrease in depreciation and amortization in the
second quarter of fiscal year 1999 as compared to the same period in fiscal year
1998 is a result of a re-allocation of this excess, which related principally to
trademarks and goodwill. Depreciation and amortization expenses increased
$491,265 from $1,250,608 to $1,741,873 during the six months of fiscal year
1999. The increase is mainly due to the additional amortization of intangibles
and goodwill from the Oxycal and Peridex(R) acquisitions which occurred during
the second quarter of fiscal year 1998.

                  During the quarter ended October 31, 1998 the Company recorded
an income tax benefit of $910,000 ($250,000 of which was attributable to the
exercise of common stock options and therefore was credited to capital in excess
of par value), partially offset by an income tax expense of $64,000 related to
the first quarter of fiscal year 1999. For the quarter ended January 31, 1998,
the Company recorded an income tax benefit of $1,000,000 ($300,000 of which was
attributable to the exercise of common stock options and therefore was credited
to capital in excess of par value). In the past, the Company had fully offset
its net deferred tax asset with a valuation allowance due to the Company's lack
of earnings history.



                                       11
<PAGE>   12
LIQUIDITY AND CAPITAL RESOURCES

                  At January 31, 1999, the Company had net working capital of
$19,712,629 and its current ratio (the ratio of current assets to current
liabilities) was 3.4 to 1. At July 31, 1998, the Company had net working capital
of $19,214,896, and its current ratio was 3.2 to 1.

                  Trade accounts receivable - net at January 31, 1999 were
$8,379,698 compared to trade accounts receivable - net at July 31, 1998 of
$7,161,240. Trade accounts receivable - net as a percentage of quarterly
revenues were 46.2% at January 31, 1999 as compared to 43.0% at July 31, 1998.
The increase is due mainly to increased quarter end sales at January 31, 1999 as
compared to the quarter ended July 31, 1998.

                  At January 31, 1999, the Company had inventories of
$12,170,461, an increase of $620,452 from inventories at July 31, 1998. The
Company believes current inventories are at levels necessary to support market
expansion and to maintain adequate liquidity.

                  During the six months ended January 31, 1999, net cash used in
operations was approximately $1,982,000. This was primarily the result of a net
loss for the period and changes in operating assets and liabilities partially
offset by non-cash depreciation and amortization for the period. Net cash used
in investing activities was approximately $1,499,000 during the six months ended
January 31, 1999 and primarily were manufacturing related fixed asset additions
for OraTest(R) and Oxycal.

                  Management believes that continued growth in the Company's
sales of its products will provide sufficient funding for the Company's current
operations, excluding OraTest(R) related costs, for the next twelve months. The
Company may require additional financing to support the production of its
products in quantities sufficient to support continued market expansion and to
fund future OraTest(R) clinical, regulatory, manufacturing and marketing costs.
In anticipation of these potential requirements, in February 1999 the Company
increased its line of credit with Bank One Corporation to $9,000,000 and
extended the commitment period from 12 to 18 months. Additionally, the interest
rate was reduced to the prime rate plus .25%. The loan covenants remain
essentially unchanged from the prior commitment.

Year 2000 Compliance

                  The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. The
Company's computer equipment and software and devices with embedded technology
that are date-sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.

                  The Company recognized that the impact of the Year 2000 issue
extends beyond traditional computer hardware and software to automated plant
systems and instrumentation, as well as third parties. The Year 2000 issue is
being addressed within the Company by its individual business units, and
progress is reported periodically to management. The Company's plan also
includes contracting with independent experts as considered necessary.


                                       12
<PAGE>   13
         The Company is currently in the process of evaluating the capabilities
of its internal systems to process the Year 2000 correctly. The Company believes
that most vendor-developed software which it utilizes in its internal operations
will be made Year 2000 compliant before July 1999 through vendor-provided
updates. Additionally, the Company is testing its internally developed software
and hardware, which are included in the products sold to its customers. Such
assessments are expected to be completed by July 1999.

         The Company is also reviewing the efforts of its vendors and customers
to become Year 2000 compliant. Letters and questionnaires have been sent to most
critical entities with which the Company does business to assess their Year 2000
readiness. Responses to the questionnaires arrive periodically and are helping
the Company evaluate the extent to which it may be vulnerable to its Vendors'
own Year 2000 issues. Although this review is continuing, the Company is not
currently aware of any vendor or customer circumstances that may have a material
adverse impact on the Company. The Company can provide no assurance that Year
2000 compliance plans will be successfully completed by suppliers and customers
in a timely manner. If a significant number of the Company's suppliers and
customers were to experience business disruptions as a result of their lack of
Year 2000 readiness, their problems could have a material adverse effect on the
financial position and results of operations of the Company.

Costs

The total cost of Year 2000 activities is not expected to be material to the
Company's operations, liquidity or capital resources. Costs are being managed
within each business unit. The total estimated cost for the Company's Year 2000
work is approximately $150,000, of which $36,000 has been incurred to date;
however, such costs are subject to change as a result of ongoing evaluation of
the extent of the Year 2000 problem at the Company and its suppliers and
affiliates.

Risks

The Company believes that the Year 2000 issue will not pose significant
operational problems for the Company. However, there can be no assurances that
the Year 2000 compliance activities performed by the Company will adequately
identify and test all of the Company's critical internal and external systems to
ensure Year 2000 compliance. Additionally, due to the general uncertainty
inherent in the Year 2000 issue, there can be no assurance that the Year 2000
issues of other entities will not have a material adverse impact on the
Company's systems or results of operations.

Contingency Plan

         The Company is in the process of formulating contingency plans in the
event that the Company's Year 2000 issues are not resolved prior to the time
that any system failures or interruptions in day-to-day business operations
could occur. The contingency plans are evolving as Year 2000 assessment
progresses. The Company currently plans to complete Year 2000 contingency plans
by October 1999 and such plans will likely provide for assuring adequate
inventory to meet customer needs, identifying and securing alternate sources of
critical services, materials and utilities when possible and establishing crisis
teams to address unexpected problems.


                                       13
<PAGE>   14
FORWARD LOOKING INFORMATION

         This Report 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 the
Company'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 in this document. A wide variety of factors could cause or
contribute to such differences and could adversely impact revenues,
profitability, cash flows and capital needs. Included among the factors
affecting OraTest(R) are the FDA's ultimate decision regarding OraTest(R); the
length and expense of the FDA review process; the possibility that the FDA will
not accept an amendment to its New Drug Application ("NDA") and will require the
filing of a new NDA; the limitations on indicated uses for which OraTest(R) may
be marketed; and, if approved, the market reception to OraTest(R) and any
post-marketing reports or surveillance programs to monitor usage or side effects
of OraTest(R). There can be no assurance that the forward-looking statements
contained in this document will, in fact, transpire or prove to be accurate. For
a more detailed description of these and other cautionary factors that may
affect the Company's future results, please refer to the Company's Annual Report
on Form 10-K for its fiscal year ended July 31, 1998 filed with the Securities
and Exchange Commission.


                                       14
<PAGE>   15
PART II - OTHER INFORMATION

Item 1.- Legal Proceedings

         The Company, certain officers of the Company and its subsidiaries, and
certain members of the Company's Board of Directors are defendants in class
actions filed between January 25, 1999 and February 19, 1999, all of which are
currently pending in the United States District Court for the District of
Arizona consolidated under the caption In re Zila, Inc. Securities Litigation,
No. CIV 99 0115 PHX EHC. The plaintiffs in these cases, who allege to have
purchased common stock of the Company and options for the purchase of stock of
the Company, are seeking class certification to represent all persons who
purchased securities in the Company during the defined class periods and who
were allegedly damaged. The class periods as defined in the various actions that
have been consolidated range from February, 1998 at the earliest through January
13, 1999 at the latest. The Court has ordered that the plaintiffs file a
consolidated amended complaint after certain procedural steps have occurred. As
a result, the Company does not know, as of this date, what class period will be
reflected in the consolidated amended complaint. The plaintiffs allege that in
certain public statements and filings with the Securities and Exchange
Commission related to OraTest(R) Zila and certain of its officers made false or
misleading statements, concealed material adverse information and took other
manipulative actions that artificially inflated the price of the Company's
common stock in violation of the federal securities laws. The plaintiffs in the
various class action complaints that have been consolidated seek unspecified
compensatory damages, attorneys' fees, costs, expenses and unspecified equitable
and/or injunctive relief. The Company and the individual defendants deny the
plaintiffs' allegations of wrongdoing and intend to vigorously defend themselves
in the consolidated action.

         Upon consummation of the Company's merger with Bio-Dental, each of the
outstanding shares of Bio-Dental common stock was converted into .825 shares of
the Company's Common Stock. Subsequent to the merger with Bio-Dental, the
Company's stock transfer agent was presented with a certificate purporting to
represent 220,000 shares of Bio-Dental common stock which did not appear on the
records of Bio-Dental's stock transfer agent as of the closing date. The Company
is currently investigating this matter and has not determined whether any shares
of the Company's common stock are required to be issued in exchange for the
shares purportedly represented by this certificate.

         The Company occasionally encounters minor litigation as a means to
resolve disputes which arise in the ordinary course of business. None of these
minor lawsuits is believed to be material to the Company's ongoing operations or
operating results.


                                       15
<PAGE>   16
Item 4 - Submission of matters to a vote of security holders.

(a)      The Company held its Annual Meeting on December 10, 1998.

(b)      Joseph Hines, Clarence J. Baudhuin, Carl A. Schroeder, Patrick M.
         Lonergan, Michael Lesser, Curtis M. Rocca III, and Thomas B. Simone
         were elected directors of the Company at the Annual Meeting. During the
         second quarter and subsequent to the annual meeting, Clarence J.
         Baudhuin resigned as a member of the Board of Directors.

(c)      At the Annual Meeting, the Company's stockholders ratified Deloitte &
         Touche LLP as auditors for the Company for its 1999 fiscal year. The
         vote was as follows:

<TABLE>
<CAPTION>
               Votes for                        Votes withheld                     Votes against
               ----------                       --------------                     -------------
<S>                                             <C>                                <C>    
               30,275,613                           117,818                           140,731
</TABLE>

Item 5 - Other information  

         None

Item 6 - Exhibits and Reports on Form 8-K

         (a)      Exhibits

           Exhibit Number             Description

                      27              Financial Data Schedule

         (b)      Reports on Form 8-K

                  None


                                       16
<PAGE>   17
                                   SIGNATURES

         Pursuant to the requirements 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.


Date: March 17, 1999                       By /s/Joseph Hines
                                           Joseph Hines
                                           President, Chairman of the Board
                                           (Principal Executive Officer)



                                           By /s/Bradley C. Anderson
                                           Bradley C. Anderson
                                           Vice President and Chief
                                           Financial Officer (Principal
                                           Financial & Accounting Officer)


                                       17