<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 April 30, 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 April
30, 1999 was 39,383,178 shares.

                                                                      Exhibit 16
                                                                  Total pages 17
<PAGE>   2
                                TABLE OF CONTENTS

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

<S>         <C>                                                                                          <C>
   Item 1.  Financial Statements (Unaudited)

             Condensed consolidated balance sheets as of April 30, 1999 and July 31, 1998                   3

             Condensed consolidated statements of operations for the quarters and nine months
             ended April 30, 1999 and 1998                                                                  4

             Condensed consolidated statements of cash flows for the nine months ended April 30,
             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>

                                                                                       April           July
ASSETS                                                                                30, 1999        31, 1998
                                                                                  ------------    ------------

<S>                                                                               <C>             <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                       $  4,591,299    $  5,241,201
  Cash, held by trustee                                                              4,841,352
  Trade receivables - net                                                            7,623,561       7,161,240
  Inventories                                                                       11,412,625      11,550,009
  Prepaid expenses and other current assets                                          1,315,058       1,254,258
  Deferred income taxes                                                              3,697,849       2,785,430
                                                                                  ------------    ------------

         Total current assets                                                       33,481,744      27,992,138
                                                                                  ------------    ------------

PROPERTY AND EQUIPMENT - Net                                                         5,629,698       4,955,861
PURCHASED TECHNOLOGY RIGHTS - Net                                                    6,146,525       6,473,854
GOODWILL - Net                                                                      15,687,664      17,009,914
TRADEMARKS - Net                                                                    11,159,651      11,131,925
OTHER INTANGIBLE ASSETS - Net                                                        2,425,393       2,173,352
OTHER ASSETS                                                                           324,379         126,833
                                                                                  ------------    ------------


TOTAL                                                                             $ 74,855,054    $ 69,863,877
                                                                                  ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                                $  2,905,362    $  4,917,626
  Accrued liabilities                                                                2,704,509       2,251,105
  Deferred revenue                                                                     853,183         567,956
  Short-term borrowings                                                                236,319          87,598
  Current portion of long-term debt                                                  1,046,595         952,957
                                                                                  ------------    ------------

         Total current liabilities                                                   7,745,968       8,777,242

LONG-TERM DEBT - Net of current portion                                              9,693,274       1,355,547
                                                                                  ------------    ------------

          Total liabilities                                                         17,439,242      10,132,789
                                                                                  ------------    ------------

SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK:
  Issued 30,000; outstanding 10,110 shares (April 30, 1999) and
  28,800 shares (July 31, 1998); liquidation preference value: $1,220 per share     11,929,599      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 39,383,178 shares
   (April 30, 1999) and 34,743,575 shares (July 31, 1998)                               39,383          34,744
  Capital in excess of par value                                                    66,242,750      43,877,560
  Deficit                                                                          (20,795,495)    (17,982,721)
                                                                                  ------------    ------------

                                                                                    45,486,638      25,929,583
  Less 42,546 common shares held by wholly-owned
    subsidiary (at cost)                                                                  (425)           (425)
                                                                                  ------------    ------------

        Total shareholders' equity                                                  45,486,213      25,929,158
                                                                                  ------------    ------------

TOTAL                                                                             $ 74,855,054    $ 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 NINE MONTHS ENDED APRIL 30, 1999 AND 1998
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                 Quarters ended                 Nine months ended
                                        ----------------------------    ----------------------------

                                           April 30,       April 30,       April 30,       April 30,
                                                1999            1998            1999            1998
                                        ------------    ------------    ------------    ------------
<S>                                     <C>             <C>             <C>             <C>
REVENUES                                $ 16,916,658    $ 17,723,721    $ 51,541,085    $ 45,464,886
                                        ------------    ------------    ------------    ------------

OPERATING COSTS AND EXPENSES:
  Cost of products sold                    8,435,501       7,924,393      24,919,199      22,544,786
  Selling, general and administrative      8,912,238       8,046,701      24,345,960      18,601,229
  Research & development                   1,057,527         677,063       3,012,534       1,837,133
  Depreciation and amortization              897,050         865,909       2,638,923       2,116,517
                                        ------------    ------------    ------------    ------------
                                          19,302,316      17,514,066      54,916,616      45,099,665
                                        ------------    ------------    ------------    ------------

INCOME (LOSS) FROM OPERATIONS             (2,385,658)        209,655      (3,375,531)        365,221
                                        ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSES):
  Interest income                             41,160         107,480         174,337         232,129
  Interest expense                           (79,107)        (97,059)       (210,087)       (204,217)
  Other expense                                2,621             585           2,507         (20,263)
                                        ------------    ------------    ------------    ------------

                                             (35,326)         11,006         (33,243)          7,649
                                        ------------    ------------    ------------    ------------

INCOME (LOSS) BEFORE INCOME
  TAX BENEFIT                             (2,420,984)        220,661      (3,408,774)        372,870

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

NET INCOME (LOSS)                         (2,420,984)        220,661      (2,812,774)      1,072,870

PREFERRED STOCK DIVIDEND REQUIREMENT:
  SERIES A EMBEDDED DIVIDEND (NOTE 6)                      2,888,091                       6,042,783
                                        ------------    ------------    ------------    ------------

NET LOSS AVAILABLE TO COMMON
  SHAREHOLDERS                          $ (2,420,984)   $ (2,667,430)   $ (2,812,774)   $ (4,969,913)
                                        ============    =============    ============    ============

BASIC AND DILUTED LOSS PER SHARE        $      (0.06)   $      (0.08)   $      (0.08)   $      (0.15)
                                        ============    =============    ============    ============


BASIC AND DILUTED SHARES OUTSTANDING      39,068,984      34,532,219      37,358,081      33,757,563
                                        ============    ============    ============    ============
</TABLE>

     See notes to condensed consolidated financial statements.


                                       4
<PAGE>   5
ZILA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED APRIL 30, 1999 AND 1998
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                   1999            1998
                                                                           ------------    ------------
OPERATING ACTIVITIES:
<S>                                                                        <C>             <C>
     Net income (loss)                                                     $ (2,812,774)   $  1,072,870
     Adjustments to reconcile net income (loss) to
         net cash used in operating activities:
         Depreciation and amortization                                        2,638,923       2,116,517
         Discount on contractual obligation                                      93,060         170,173
         Deferred income taxes                                                 (662,419)       (700,000)
         Change in assets and liabilities:
             Receivables - net                                                 (462,321)      1,488,896
             Inventories                                                        137,384      (1,121,111)
             Prepaid expenses and other assets                                 (258,346)       (719,905)
             Accounts payable and accrued expenses                           (1,558,860)        170,296
             Deferred revenue                                                   285,227         141,699
                                                                           ------------    ------------

               Net cash (provided by) used in operating activities           (2,600,126)      2,619,435
                                                                           ------------    ------------

INVESTING ACTIVITIES:
     Purchases of property and equipment                                     (1,417,046)     (1,234,388)
     Acquisition, net of cash acquired                                                      (33,595,322)
     Purchases of intangible assets                                            (525,901)       (354,275)
                                                                           ------------    ------------

         Net cash used in investing activities                               (1,942,947)    (35,183,985)
                                                                           ------------    ------------

FINANCING ACTIVITIES:
     Net proceeds from short-term borrowings                                    148,721         161,834
     Net proceeds from issuance of common stock                                 247,498      10,379,928
     Net proceeds from issuance of preferred stock                                           28,647,250
     Net proceeds from long-term debt                                         9,209,486          93,753
     Cash, held by trustee                                                   (4,841,352)
     Principal payments on long-term debt                                      (871,182)        (41,557)
                                                                           ------------    ------------

         Net cash provided by financing activities                            3,893,171      39,241,208
                                                                           ------------    ------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                           (649,902)      6,676,658

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                             $  5,241,201    $  2,071,563
                                                                           ------------    ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                   $  4,591,299    $  8,748,221
                                                                           ============    ============

CASH PAID FOR INTEREST                                                     $    117,026    $     34,682
                                                                           ============    ============

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                  $ 21,872,331
</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.       The following is a reconciliation of the numerator and denominator of
         basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                                            Quarter ended                         Nine months ended
                                                              April 30,                               April 30,
                                                           1999              1998                 1999               1998
                                                        ----------------------------           ------------------------------
<S>                                                    <C>               <C>                   <C>                <C>
         Net loss available
            to common shareholders                     $(2,420,984)      $(2,667,430)          $(2,812,774)       $(4,969,913)
         Average outstanding
            common shares                               39,068,984        34,532,219            37,358,081         33,757,563
         Basic and dilutive net loss
            per share                                      $(0.06)           $(0.08)               $(0.08)            $(0.15)
</TABLE>

         Since a loss was incurred for the quarter and nine months ended April
         30, 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>
                       April 30,       July 31,
                            1999           1998
                     -----------    -----------

<S>                  <C>            <C>
Finished goods       $ 7,377,986    $ 7,048,539
Raw materials          4,321,518      4,807,214
Inventory reserves      (286,879)      (305,744)
                     -----------    -----------

                     $11,412,625    $11,550,009
                     ===========    ===========
</TABLE>

4.       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).

5.       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.

         In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
         Instruments and Hedging Activities. SFAS No. 133 requires that an
         enterprise recognize all derivatives as either assets or liabilities in
         the statement of financial position and measure those instruments at
         fair value. The statement is effective for the Company's fiscal
         quarters and fiscal years beginning after June 15, 1999. The FASB
         recently issued an exposure draft which, if adopted, would delay the
         effective implementation date of SFAS No. 133 until June 15, 2000. The
         Company has not completed evaluating the impact of implementing the
         provisions of SFAS No. 133.




                                       7
<PAGE>   8
6.       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. 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 nine months of
         fiscal year 1999, 18,690 shares of the Preferred Stock were converted
         into common stock.

7.       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.

         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.


                                       8
<PAGE>   9
         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.

8.       In April 1999, Oxycal entered into a transaction with The Industrial
         Development Authority of the County of Yavapai (the "Authority") in
         which the Authority issued $5.0 million in Industrial Development
         Revenue Bonds (the "Bonds"), the proceeds of which were loaned to
         Oxycal for the construction of a new manufacturing and laboratory
         facility. The Bond proceeds are being held by the trustee, Bank One,
         Arizona. The Bonds consist of $3.9 million Series A and $1.1 million
         Taxable Series B which, as of April 30, 1999, carried interest rates of
         3.60% and 5.00%, respectively. The Bonds were marketed and sold by Banc
         One Capital Markets and carry a maturity of 20 years. In connection
         with the issuance of the Bonds, the Authority required that Oxycal
         obtain, for the benefit of the Bond holders, an irrevocable direct-pay
         letter of credit to secure payment of principal and interest. The
         letter of credit is guaranteed by Zila.


                                       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 adjunct. 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 April 30, 1999, the Company had a net
loss of $2,420,984 compared to net income of $220,661 for the quarter ended
April 30, 1998. For the nine month period ended April 30, 1999, the Company had
a net loss of $2,812,774 compared to net income of $1,072,870 for the nine
months ended April 30, 1998.

                  In fiscal year 1998, as a result of the embedded dividend on
the Series A Preferred Stock issued in November 1997, net income available to
common shareholders has been reduced by the accretion of such dividend in the
amount of $2,888,091 for the quarter and $6,042,783 for the nine months ended
April 30, 1998. When taking into account the embedded dividend, the Company had
a net loss available to common shareholders of $2,667,430 and $4,969,913 for the
quarter and nine months ended April 30, 1998, respectively (see Note 6).

                  Revenues during the third quarter of the current fiscal year
totaled $16,916,658 compared to revenues of $17,723,721 during the third quarter
of the prior fiscal year, a 4.6% decrease. The decrease in revenues for the
quarter was primarily attributable to a 5.1% decrease in the Nutraceuticals
Group and a 4.5% decrease in the Pharmaceuticals Group partially offset by a
5.0% increase in the Professional Products Group. For the first nine months of
the current fiscal year, revenues were $51,541,085 compared to $45,464,886 for
the same period of the prior fiscal year, a 13.4% increase. The growth in
revenues for the first nine months of fiscal year 1999 was primarily
attributable to the Company's acquisitions of Oxycal and Peridex(R)
which occurred during the second quarter of fiscal year 1998, as well as
revenue increases in the Professional Products Group. As a result, the nine
months ended April 30, 1998 reflect six months of Peridex(R) and Oxycal revenues
whereas the nine months ending April 30, 1999 relfect a full nine months of
Peridex(R) and Oxycal revenues.




                                       10
<PAGE>   11
                  In the quarter ended April 30, 1999, cost of products sold was
$8,435,501, a 6.4% increase from $7,924,393 for the quarter ended April 30,
1998. Cost of products sold as a percentage of revenues increased to 49.9% in
the quarter ended April 30, 1999 from 44.7% in the quarter ended April 30, 1998.
The increase for the quarter ended April 30, 1999 reflects the growth of
Professional Products Group as a percentage of total revenues, 58.1% for quarter
ended April 30, 1999 compared to 50.5% for the previous year quarter. Margins
for the Professional Products Group are lower as compared to the other operating
groups resulting in a higher cost of products sold as a percentage of revenues.
For the nine months ended April 30, 1999, cost of products sold was $24,919,199
compared to $22,544,786 for the same period in the prior fiscal year, an
increase of 10.5%. However, cost of products sold as a percentage of revenues
decreased to 48.3% for the nine months ended April 30, 1999 from 49.6% in the
nine months ended April 30, 1998. This decrease in cost of products sold as a
percentage of revenues, is primarily due to the Peridex and Oxycal acquistions
which occurred during the second quarter of fiscal year 1998. The cost of
product sold as a percentage of revenues is lower for Peridex(R) and Oxycal
as compared to the same percentage in the Professional Products Group.

                  Selling, general and administrative expenses increased
$865,537 from $8,046,701 in the third quarter of fiscal year 1998 to
$8,912,238 for the same period in fiscal year 1999. The increase for
the quarter ended April 30, 1999 is attributable to increased allowance for
doubtful accounts, advertising and travel costs at Cygnus Imaging, selling
expense in the Professional Products Group and legal and professional
expenses. Selling, general and administrative expenses increased
$5,744,731 from $18,601,229 during the first nine months of fiscal
year 1998 to $24,345,960 during the first nine 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, corporate regulatory affairs costs,
legal, public relations and professional expenses as well as increased selling
expense in the Professional Products Group. Cost associated with resolving
problems with the CygnusRay2(TM), Cygnus Imaging's digital x-ray system, have
also contributed to the increase in expenses during the first nine months of
fiscal year 1999.

                  Research and development expenses increased $380,464, or
56.2%, from $677,063 in the third quarter of fiscal year 1998 to $1,057,527 for
the same period in fiscal year 1999. For the nine months ended April 30, 1999,
research and development expenses were $3,012,534 compared to $1,837,133 for the
same period of the prior fiscal year, an increase of $1,175,401, or 64.0%. The
increases for the quarter and nine months ended April 30, 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 increased $31,141 from
$865,909 in the third quarter of fiscal year 1998 to $897,050 for the same
period in fiscal year 1999. Depreciation and amortization expenses increased
$522,406 from $2,116,517 to $2,638,923 during the nine 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.



                                       11
<PAGE>   12
         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.


LIQUIDITY AND CAPITAL RESOURCES

                  At April 30, 1999, the Company had net working capital of
$25,735,776 and its current ratio (the ratio of current assets to current
liabilities) was 4.3 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 April 30, 1999 were
$7,623,561 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 45.1% at April 30, 1999 as compared to 43.0% at July 31, 1998. The
increase is due mainly to increased quarter end sales at April 30, 1999 as
compared to the quarter ended July 31, 1998.

                  At April 30, 1999, the Company had inventories of $11,412,625,
a decrease of $137,384 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 nine months ended April 30, 1999, net cash used in
operations was approximately $2,600,000. 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 $1,943,000 during the nine months
ended April 30, 1999 and primarily were manufacturing related fixed asset
additions for OraTest(R) and Oxycal. Net cash provided by financing activities
was approximately $3,900,000 during the nine months ended April 30, 1999 and
relates to borrowing from the line of credit and bond transaction discussed
below.

         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%. At April 30, 1999, the Company had
borrowings of $4,200,000 against the line of credit. The loan covenants remain
essentially unchanged from the prior commitment.



                                       12
<PAGE>   13
         In April 1999, Oxycal entered into a transaction with The Industrial
Development Authority of the County of Yavapai (the "Authority") in which the
Authority issued $5.0 million in Industrial Development Revenue Bonds (the
"Bonds"), the proceeds of which were loaned to Oxycal for the construction of a
new manufacturing and laboratory facility. The Bond proceeds are being held by
the trustee, Bank One, Arizona. The Bonds consist of $3.9 million Series A and
$1.1 million Taxable Series B which, as of April 30, 1999, carried interest
rates of 3.60% and 5.00%, respectively. The Bonds were marketed and sold by Banc
One Capital Markets and carry a maturity of 20 years. In connection with the
issuance of the Bonds, the Authority required that Oxycal obtain, for the
benefit of the Bond holders, an irrevocable direct-pay letter of credit to
secure payment of principal and interest. The letter of credit is guaranteed by
Zila.

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.

         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. As of April 30, 1999, the Company's individual business
units have reported that approximately 60% to 80% of the responses have been
received. 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.



                                       13
<PAGE>   14
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 $80,000 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.

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 5 - Other information

         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
intend to commence the study after the FDA has completed its review of the
study protocol that the researchers have submitted to the agency. Upon
completion of the new study, the Company intends to use the resulting data
in its planned amendment to the NDA. Also, as a result of the March 1st meeting,
the Company has terminated the 12-site clinical study begun in 1995, and all the
data from this study will be submitted to the agency.

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: June 14, 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
<PAGE>   18
                                 Exhibit Index


           Exhibit Number             Description

                      27              Financial Data Schedule