##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 Form 10-Q
 
 (Mark one)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 31, 2006
 OR
 o
    
    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(State or Other Jurisdiction of 
Incorporation)
    
    86-0619668(I.R.S. Employer
Identification No.)
 5227 North 7th Street, Phoenix, Arizona 85014-2800  (Address of Principal Executive Offices and Zip Code)
 (602) 266-6700  (Registrants telephone number, including area code)
 
 þ o
  o þ o
 o þ




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##### 



ZILA, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 2006
TABLE OF CONTENTS
 PagePart I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of October 31, 2006 and July 31, 2006
    
    
    3Consolidated
Statements of Operations for the three-month periods ended
October 31, 2006 and 2005
    
    
    4Consolidated Statements of Cash Flows for the three-month periods ended October 31, 2006 and 2005
    
    
    5Consolidated Statements of Shareholders Equity for the three-month periods ended October 31, 2006 and 2005Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    35SIGNATURESEX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited).
 ZILA, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 October 31,
    
    
    July 31,2006
    
    
    2006(unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    14,653,329
    
    
    $
    3,958,190Restricted cash collateral
    
    
    
    
    
    
    3,610,950Trade receivables  net of allowances of $81,000 and $70,000
    
    
    1,113,983
    
    
    
    3,764,022Inventories  net
    
    
    1,991,322
    
    
    
    9,698,810Prepaid expenses and other current assets
    
    
    2,111,376
    
    
    
    1,938,188Total current assets
    
    
    19,870,010
    
    
    
    22,970,160Property and equipment  net
    
    
    1,644,857
    
    
    
    8,410,580Purchased technology  net
    
    
    2,433,268
    
    
    
    2,552,937Goodwill  net
    
    
    4,033,266
    
    
    
    6,930,192Trademarks and other intangible assets  net
    
    
    3,821,501
    
    
    
    12,554,397Other assets
    
    
    1,596,349
    
    
    
    2,945,679Total Assets
    
    $
    33,399,251
    
    
    $
    56,363,945LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    2,549,440
    
    
    $
    4,753,785Accrued liabilities
    
    
    4,902,902
    
    
    
    4,156,030Warrant liability
    
    
    1,538,339
    
    
    
    2,369,965Short-term borrowings
    
    
    298,901
    
    
    
    30,347Deferred revenue
    
    
    152,976
    
    
    
    152,976Current portion of long-term debt and capital lease obligations
    
    
    24,158
    
    
    
    18,361,113Total current liabilities
    
    
    9,466,716
    
    
    
    29,824,216Deferred gain on sale leaseback
    
    
    190,391
    
    
    
    228,635Long-term debt and capital lease obligations  net of current portion
    
    
    521,635
    
    
    
    3,060,011Total liabilities
    
    
    10,178,7422
    
    
    
    33,112,862Commitments and contingencies (Note 12)Shareholders equity:Preferred stock  Series B, $.001 par value - 2,500,000 shares
authorized, 100,000 shares issued and outstanding
    
    
    462,500
    
    
    
    462,500Common stock, $.001 par value - 65,000,000 shares authorized,
46,022,593 shares and 46,007,593 shares issued and outstanding
    
    
    46,023
    
    
    
    46,008Capital in excess of par value
    
    
    85,551,756
    
    
    
    85,305,331Accumulated other comprehensive loss
    
    
    (91,665
    )
    
    
    (82,678
    )Accumulated deficit
    
    
    (62,197,034
    )
    
    
    (61,929,007
    )Common stock in treasury, at cost (218,411 shares)
    
    
    (551,071
    )
    
    
    (551,071
    )Total shareholders equity
    
    
    23,220,509
    
    
    
    23,251,083Total Liabilities and Shareholders Equity
    
    $
    33,399,251
    
    
    $
    56,363,945
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ZILA, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Unaudited
 Three months ended October 31,2006
    
    
    2005Net revenues
    
    $
    1,378,039
    
    
    $
    1,699,677Cost of products sold
    
    
    838,591
    
    
    
    651,920Gross profit
    
    
    539,448
    
    
    
    1,047,757Operating costs and expenses:Marketing and selling
    
    
    1,548,863
    
    
    
    1,247,271General and administrative
    
    
    3,182,955
    
    
    
    2,629,964Research and development
    
    
    1,534,692
    
    
    
    1,680,052Depreciation and amortization
    
    
    391,876
    
    
    
    329,5016,658,386
    
    
    
    5,886,788Loss from operations
    
    
    (6,118,938
    )
    
    
    (4,839,031
    )Other income (expense):Interest income
    
    
    95,629
    
    
    
    79,650Interest expense
    
    
    (4,811,130
    )
    
    
    (8,407
    )Derivative income
    
    
    1,058,873
    
    
    
    Other expense
    
    
    (9,943
    )
    
    
    (12,096
    )(3,666,571
    )
    
    
    59,147Loss from continuing operations before income taxes
    
    
    (9,785,509
    )
    
    
    (4,779,884
    )Income tax
benefit (expense)
    
    
    3,864,900
    
    
    
    (3,600
    )Loss from continuing operations
    
    
    (5,920,609
    )
    
    
    (4,783,484
    )Discontinued operations:Gain on disposal of operations
    
    
    11,110,406
    
    
    
    Loss from operations
    
    
    (1,571,074
    )
    
    
    (218,689
    )Income tax
expense
    
    
    (3,877,000
    )
    
    
    Income (loss) from discontinued operations
    
    
    5,662,332
    
    
    
    (218,689
    )Net loss
    
    
    (258,277
    )
    
    
    (5,002,173
    )Preferred stock dividends
    
    
    9,750
    
    
    
    9,750Net loss attributable to common shareholders
    
    $
    (268,027
    )
    
    $
    (5,011,923
    )Basic and diluted net income (loss) per common share:Loss from continuing operations
    
    $
    (0.13
    )
    
    $
    (0.11
    )Income (loss) from discontinued operations
    
    
    0.13
    
    
    
    0.00Net loss
    
    $
    0.00
    
    
    $
    (0.11
    )Weighted average shares outstanding
    
    
    45,798,041
    
    
    
    45,659,928
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ZILA, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Unaudited
 Three months ended October 31,2006
    
    
    2005Operating activities:Net loss
    
    $
    (258,277
    )
    
    $
    (5,002,173
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization continuing operations
    
    
    391,876
    
    
    
    329,501Depreciation and amortization discontinued operations
    
    
    205,493
    
    
    
    379,353Amortization of deferred financing costs
    
    
    2,095,234
    
    
    
    10,331Amortization of term loan discount
    
    
    2,067,271
    
    
    
    Non cash derivative (income) expense
    
    
    (1,058,873
    )
    
    
    Gain from sale of discontinued operations
    
    
    (11,110,406
    )
    
    
    Non-cash interest on term loan
    
    
    137,540
    
    
    
    Non-cash stock-based employee compensation expense
    
    
    241,937
    
    
    
    81,222Non-cash charge for options issued to outside parties
    
    
    (23,472
    )
    
    
    6,064Other non-cash items  net
    
    
    (54,041
    )
    
    
    83,578Change in assets and liabilities:Receivables  net
    
    
    955,686
    
    
    
    2,297,244Inventories
    
    
    (305,989
    )
    
    
    (1,167,562
    )Prepaid expenses and other assets
    
    
    7,589
    
    
    
    (510,200
    )Accounts payable and accrued liabilities
    
    
    2,604,450
    
    
    
    1,518,621Net cash used in operating activities
    
    
    (4,103,982
    )
    
    
    (1,974,021
    )Investing activities:Additions to property and equipment, net
    
    
    (172,948
    )
    
    
    (628,466
    )Additions to intangible assets, net
    
    
    (125,380
    )
    
    
    (151,718
    )Restricted cash returned from (deposited to) collaterized letter of credit
    
    
    3,610,950
    
    
    
    (4,775
    )Net proceeds from disposition of discontinued operations
    
    
    34,705,077
    
    
    
    Acquisition of operations
    
    
    (283,470
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    37,734,229
    
    
    
    (784,959
    )Financing activities:Short-term borrowings (repayments), net
    
    
    268,554
    
    
    
    165,168Financing costs
    
    
    (463,934
    )
    
    
    Proceeds from issuance of common stock
    
    
    27,975
    
    
    
    58,870Dividends paid to preferred stockholders
    
    
    (9,750
    )
    
    
    (9,750
    )Principal payments on long-term debt
    
    
    (22,757,953
    )
    
    
    (87,752
    )Net cash provided by (used in) financing activities
    
    
    (22,935,108
    )
    
    
    126,536Net increase (decrease) in cash and cash equivalents
    
    
    10,695,139
    
    
    
    (2,632,444
    )Cash and cash equivalents at beginning of period
    
    
    3,958,190
    
    
    
    12,937,517Cash and cash equivalents at end of period
    
    $
    14,653,329
    
    
    $
    10,305,073
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ZILA, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Unaudited)
 AccumulatedPreferred Stock
    
    
    Common Stock
    
    
    Capital in
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalPar
    
    
    Excess of
    
    
    Accumulated
    
    
    Treasury
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Value
    
    
    Par Value
    
    
    Deficit
    
    
    Stock
    
    
    Income (Loss)
    
    
    EquityThree Months Ended
October 31, 2005BALANCE AT JULY 31,
2005
    
    
    100,000
    
    
    $
    462,500
    
    
    
    45,864,050
    
    
    $
    45,864
    
    
    $
    84,372,257
    
    
    $
    (32,543,676
    )
    
    $
    (551,071
    )
    
    $
    (63,924
    )
    
    $
    51,721,950Dividends on
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,750
    )
    
    
    
    
    
    
    
    
    
    
    (9,750
    )Exercise of common
stock options and
warrants
    
    
    
    
    
    
    
    
    
    
    32,500
    
    
    
    33
    
    
    
    58,837
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,870Stock-based
compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,286Foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169
    
    
    
    169Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,002,173
    )
    
    
    
    
    
    
    
    
    
    
    (5,002,173
    )BALANCE AT OCTOBER
31, 2005
    
    
    100,000
    
    
    $
    462,500
    
    
    
    45,896,550
    
    
    $
    45,897
    
    
    $
    84,518,380
    
    
    $
    (37,555,599
    )
    
    $
    (551,071
    )
    
    $
    (63,755
    )
    
    $
    46,856,352Three Months Ended
October 31, 2006BALANCE AT JULY 31,
2006
    
    
    100,000
    
    
    $
    462,500
    
    
    
    46,007,593
    
    
    $
    46,008
    
    
    $
    85,305,331
    
    
    $
    (61,929,007
    )
    
    $
    (551,071
    )
    
    $
    (82,678
    )
    
    $
    23,251,083Dividends on
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,750
    )
    
    
    
    
    
    
    
    
    
    
    (9,750
    )Exercise of common
stock options and
warrants
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    15
    
    
    
    27,960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,975Stock-based
compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218,465
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218,465Foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,987
    )
    
    
    (8,987
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (258,277
    )
    
    
    
    
    
    
    
    
    
    
    (258,277
    )BALANCE AT
OCTOBER 31, 2006
    
    
    100,000
    
    
    $
    462,500
    
    
    
    46,022,593
    
    
    $
    46,023
    
    
    $
    85,551,756
    
    
    $
    (62,197,034
    )
    
    $
    (551,071
    )
    
    $
    (91,665
    )
    
    $
    23,220,509
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##### Table of Contents



ZILA, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. Description of Business
     2. Summary of Significant Accounting Policies
 Basis of Presentation
   Computation of Net Income per Share
    7




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Reclassifications
  Business Concentration
   2006
    
    2005Customer A
    
    
    43
    %
    
    
    32
    %Customer B
    
    
    33
    %
    
    
    27
    %Customer C
    
    
    13
    %
    
    
    16
    %
  2006Customer A
    
    
    52
    %Customer B
    
    
    24
    %Customer C
    
    
    *
 
 *
    
    Less than 10%   Recent Accounting Pronouncements
 Amendment of FASB Staff Position FAS 123(R)-1. Classification and Measurement of
Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB
Statement No. 123(R).
  8




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Quantifying Misstatements in Current Year Financial Statements, Accounting Changes and Error Corrections.
 Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No.
109 Accounting for Income Taxes.
  3. Dispositions
  Nutraceuticals Business Unit Disposition
 9




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##### Table of Contents



Three Months Ended October 31,2006
    
    2005Net revenues from discontinued operations
    
    $
    1,629
    
    
    $
    7,414Gain on disposition
    
    
    11,135
    
    
    
    Income tax
expense
    
    
    (3,877
    )
    
    
    (Loss) income from discontinued operations
    
    
    (754
    )
    
    
    96
  Current assets
    
    $
    14,271Property, plant and equipment
    
    
    6,707Goodwill
    
    
    2,897Patents, trademarks and other intangibles
    
    
    8,675Other assets
    
    
    224Total assets
    
    $
    32,774Current liabilities
    
    $
    4,856Bonds and capital lease obligations
    
    
    2,532Total liabilities
    
    $
    7,388
 Pharmaceuticals Business Unit Dispositions
   Three Months EndedOctober 31,2006
    
    2005Net revenues from discontinued operations, net of intercompany eliminations
    
    $
    
    
    
    $
    568Loss on disposition
    
    
    (25
    )
    
    
    Loss from discontinued operations
    
    $
    (817
    )
    
    $
    (315
    )
 10




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4. Balance Sheet Information
  October 31,
    
    
    July 31,2006
    
    
    2006InventoriesFinished goods
    
    $
    1,371
    
    
    $
    4,380Work in process
    
    
    398
    
    
    
    439Raw materials
    
    
    479
    
    
    
    4,937Inventory reserves
    
    
    (257
    )
    
    
    (57
    )Total inventories  net
    
    $
    1,991
    
    
    $
    9,699Property, Plant and EquipmentLand
    
    $
    
    
    
    $
    403Building and improvements
    
    
    
    
    
    
    5,719Furniture and equipment
    
    
    2,200
    
    
    
    2,679Leasehold improvements and other assets
    
    
    966
    
    
    
    915Production and warehouse equipment
    
    
    2,394
    
    
    
    6,063Total property and equipment
    
    
    5,560
    
    
    
    15,779Less accumulated deprecation and amortization
    
    
    (3,915
    )
    
    
    (7,368
    )Property and equipment  net
    
    $
    1,645
    
    
    $
    8,411Accrued LiabilitiesAccrued professional and consulting fees
    
    $
    1,993
    
    
    $
    1,712Accrued
obligations  discontinued operations
    
    
    1,962
    
    
    
    26Accrued employee compensation and related taxes
    
    
    699
    
    
    
    516Accrued advertising
    
    
    9
    
    
    
    803Accrued royalties
    
    
    1
    
    
    
    505Other
    
    
    239
    
    
    
    594Total accrued liabilities
    
    $
    4,903
    
    
    $
    4,156
 5. Intangible Assets
  October 31, 2006
    
    
    July 31, 2006Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortizable intangibles:Purchased technology rights
    
    $
    7,419
    
    
    $
    4,986
    
    
    $
    2,433
    
    
    $
    7,419
    
    
    $
    4,866
    
    
    $
    2,553Trademarks and other
intangible assets:Trademarks
    
    
    118
    
    
    
    8
    
    
    
    110
    
    
    
    11,766
    
    
    
    4,068
    
    
    
    7,698Patents
    
    
    2,601
    
    
    
    293
    
    
    
    2,308
    
    
    
    3,668
    
    
    
    499
    
    
    
    3,169Licensing costs
    
    
    2,685
    
    
    
    1,281
    
    
    
    1,404
    
    
    
    3,162
    
    
    
    1,475
    
    
    
    1,687Total trademarks and
other intangible
assets
    
    
    5,404
    
    
    
    1,582
    
    
    
    3,822
    
    
    
    18,596
    
    
    
    6,042
    
    
    
    12,554Total
amortizable
intangible
assets
    
    
    12,823
    
    
    
    6,568
    
    
    
    6,255
    
    
    
    26,015
    
    
    
    10,908
    
    
    
    15,107Unamortizable intangible:Goodwill
    
    
    8,613
    
    
    
    4,580
    
    
    
    4,033
    
    
    
    12,401
    
    
    
    5,471
    
    
    
    6,930Total
intangibles
assets
    
    $
    21,436
    
    
    $
    11,148
    
    
    $
    10,288
    
    
    $
    38,416
    
    
    $
    16,379
    
    
    $
    22,037
  11




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##### Table of Contents



6. Debt
  October 31,
    
    
    July 31,2006
    
    
    2006Short-term borrowings:Installment note payable on insurance policies
    
    $
    299
    
    
    $
    30Current portion of long-term debt:Secured term loan, net of discount
    
    $
    
    
    
    $
    18,044IDA bond payable, Series A, current portion
    
    
    
    
    
    
    245Capital lease obligations, current portion
    
    
    24
    
    
    
    72Total current portion of long-term debt
    
    $
    24
    
    
    $
    18,361Long-term debt:Secured term loan
    
    $
    
    
    
    $
    19,884Less  unamortized discount on term loan
    
    
    
    
    
    
    (1,840
    )IDA bond payable, Series A
    
    
    
    
    
    
    2,721PharmaBio
    
    
    500
    
    
    
    500Capital lease obligations
    
    
    46
    
    
    
    156Total long-term debt
    
    
    546
    
    
    
    21,421Less current portion
    
    
    24
    
    
    
    18,361Long-term portion
    
    $
    522
    
    
    $
    3,060
 Short-term Borrowing
 Secured Term Loan
 Industrial Development Revenue Bonds
 PharmaBio Development
 Capital Leases
 12




---



##### Table of Contents



Long-term
    
    
    Capital
    
    
    TotalDebt
    
    
    Leases
    
    
    DebtRemaining 2007
    
    $
    
    
    
    $
    18
    
    
    $
    182008
    
    
    347
    
    
    
    20
    
    
    
    3672009
    
    
    153
    
    
    
    8
    
    
    
    1612010
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    
    
    
    
    
    
    
    
    2012 and thereafter
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    500
    
    
    
    46
    
    
    
    546Less current portion
    
    
    
    
    
    
    24
    
    
    
    24Long-term portion
    
    $
    500
    
    
    $
    22
    
    
    $
    522
 7. Stock Options and Warrants
 Stock Options
   WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber
    
    Exercise
    
    Contractual
    
    Intrinsicof Shares
    
    Price
    
    Term
    
    ValueBalance outstanding at July 31, 2006
    
    
    3,235
    
    
    $
    3.54
    
    
    
    7.0
    
    
    $
    878Granted
    
    
    20
    
    
    
    2.16Exercised
    
    
    (15
    )
    
    
    1.87Terminated/expired
    
    
    (71
    )
    
    
    3.56Balance outstanding at October 31, 2006
    
    
    3,169
    
    
    $
    3.54
    
    
    
    6.7
    
    
    $
    424Options exercisable at October 31, 2006
    
    
    2,217
    
    
    $
    3.55
    
    
    
    5.9
    
    
    $
    423
   Three Months Ended October 31,2006
    
    
    2005Selling and marketing
    
    $
    7
    
    
    $
    2General and administrative
    
    
    247
    
    
    
    69Research and development
    
    
    (8
    )
    
    
    4Cost of Products Sold
    
    
    2
    
    
    
    1$
    248
    
    
    $
    76
 13




---



##### Table of Contents



Three Months Ended October 31,2006
    
    2005Expected stock price volatility
    
    
    44.4
    %
    
    
    66.4
    %Expected life of options
    
    
    3.3 years
    
    
    

    4.8 yearsRisk-free interest rate
    
    
    5.1
    %
    
    
    3.7
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
   Warrants
    WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateExercise
    
    Contractual
    
    IntrinsicShares
    
    Price
    
    Term
    
    ValueOutstanding at July 31, 2006
    
    
    1,302
    
    
    $
    2.16Granted
    
    
    Exercised
    
    
    Forfeited/expired
    
    
    Outstanding at October 31, 2006
    
    
    1,302
    
    
    
    2.16
    
    
    
    4.2
    
    
    $
    135Warrants exercisable at October 31, 2006
    
    
    1,302
    
    
    
    2.16
    
    
    
    4.2
    
    
    $
    135
 14




---



##### Table of Contents



8. Income Taxes
   9. Supplemental Cash Flow Information
  Three Months Ended October 31,2006
    
    2005Interest paid
    
    $
    620
    
    
    $
    41Income taxes paid
    
    $
    23
    
    
    $
    102
 10. Comprehensive Income (Loss)
  Three Months Ended October 31,2006
    
    
    2005Net loss
    
    $
    (258
    )
    
    $
    (5,002
    )Foreign currency translation adjustments
    
    
    (9
    )
    
    
    Comprehensive loss
    
    $
    (267
    )
    
    $
    (5,002
    )
  11. Segment Information
 :
  Pharmaceuticals
    
    Biotechnology
    
    Corporate
    
    TotalNet revenues from continuing operations:2006
    
    $
    1,378
    
    
    $
    
    
    
    $
    
    
    
    $
    1,3782005
    
    
    1,700
    
    
    
    
    
    
    
    
    
    
    
    1,700Income (loss) from continuing operations
before income taxes:2006
    
    
    (1,700
    )
    
    
    (2,118
    )
    
    
    (5,968
    )
    
    
    (9,786
    )2005
    
    
    (706
    )
    
    
    (2,097
    )
    
    
    (1,976
    )
    
    
    (4,779
    )
 15




---



##### Table of Contents



Pharmaceuticals
    
    Biotechnology
    
    Corporate
    
    TotalIdentifiable assets from continuing
operations:October 31, 2006
    
    
    9,340
    
    
    
    20,232
    
    
    
    3,827
    
    
    
    33,399July 31, 2006
    
    
    9,599
    
    
    
    9,680
    
    
    
    37,085
    
    
    
    56,364Depreciation and amortization:2006
    
    
    103
    
    
    
    238
    
    
    
    51
    
    
    
    3922005
    
    
    93
    
    
    
    185
    
    
    
    52
    
    
    
    330
 12. Commitments and Contingencies
 FDA approval of the OraTest® product
    ViziLite Plus®
  Litigation
    16




---



##### Table of Contents



13. Subsequent Events
 Private Placement
   a.
    
    9,100,000 shares of our common stock for $1.75 per share (the Shares);b.
    
    $12,075,000 in aggregate principal amount of 12% Unsecured Convertible Notes, which
convert into shares of our common stock at a conversion price of $1.75 per share following
approval by our shareholders (the Unsecured Notes);c.
    
    Warrants to purchase approximately 5,403,000 shares of our common stock, which are
exercisable starting in May 2007 for five years at an exercise price of $2.21 per share
(the Initial Warrants); andd.
    
    Warrants to purchase approximately 3,105,000 shares of our common stock, which are
exercisable for five years at an exercise price of $2.21 per share following approval by
our shareholders (the Additional Warrants).
  a.
    
    $12,000,000 of 6% Senior Secured Convertible Notes (the Secured Notes); andb.
    
    Warrants to purchase approximately 1,909,000 shares of our common stock, which are exercisable
for five years at an exercise price of $2.21 per share following approval by our
shareholders (the Secured Note Warrants).
      a.
    
    at the end of each fiscal quarter commencing with the fiscal quarter ending January 31,
2007, an unrestricted balance of cash (including cash equivalents and excluding cash from
any working capital line of credit) of not less than $4,500,000, or $10,500,000 in the
event our Peridex® product line is divested;b.
    
    for each of the fiscal quarters ending January 31, 2008 and April 30, 2008, EBITDA of
at least $1, excluding certain costs associated with the development and marketing of
OraTest; provided, however, that if our Peridex® product line is divested the EBITDA target
will be reduced by $1,500,000 on an annualized basis;
 17




---



##### Table of Contents



c.
    
    for the fiscal quarter ended July 31, 2008, GAAP net income of at least $1, excluding
certain costs associated with the development and marketing of OraTest; provided, however,
that if our Peridex® product line is divested the net income target will be reduced by
$1,500,000 on an annualized basis; andd.
    
    for each fiscal quarter commencing with the fiscal quarter ending October 31, 2008, net
income of at least $1.
   a.
    
    $12,075,000 aggregate principal amount of the Unsecured Convertible Notes will not
convert into shares of common stock and the entire outstanding balance of such notes will
be due and payable in May 2007;b.
    
    we will not be able to issue up to 6,232,792 Additional Warrants, Secured Note Warrants
and Roth Warrants that are expected to be issued in the Private Placement;c.
    
    we will be in default with respect to the $12,000,000 of the Secured Notes as failure
to obtain shareholder approval is an event of default; andd.
    
    we will be subject to those covenants and operating restrictions contained in its
Unsecured Convertible Notes and Secured Notes until the repayment of such notes.
    Acquisition
   18




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Forward-Looking Statements
  Company Overview
  630
  Sale of Nutraceuticals Business Unit
  Acquisition of Pro-Dentec®
    19




---



##### Table of Contents



Private Placement
  Product Development
  Results of Operations
  Three months ended October 31,Percent of
    
    
    
    
    
    
    Percent ofNet
    
    
    
    
    
    
    Net2006
    
    
    Revenues
    
    
    2005
    
    
    Revenues
    
    
    ChangeNet revenues
    
    $
    1,378
    
    
    
    100
    %
    
    $
    1,700
    
    
    
    100
    %
    
    
    (19
    )%Cost of products sold
    
    
    839
    
    
    
    61
    
    
    
    652
    
    
    
    38
    
    
    
    29Gross profit
    
    
    539
    
    
    
    39
    
    
    
    1,048
    
    
    
    62
    
    
    
    (49
    )Operating Costs and Expenses:Marketing & selling
    
    
    1,548
    
    
    
    112
    
    
    
    1,247
    
    
    
    73
    
    
    
    24General & administrative
    
    
    3,183
    
    
    
    231
    
    
    
    2,630
    
    
    
    155
    
    
    
    21Research & development
    
    
    1,535
    
    
    
    111
    
    
    
    1,680
    
    
    
    99
    
    
    
    (9
    )Depreciation & amortization
    
    
    392
    
    
    
    28
    
    
    
    330
    
    
    
    19
    
    
    
    196,658
    
    
    
    483
    
    
    
    5,887
    
    
    
    346
    
    
    
    13Loss from operations
    
    
    (6,119
    )
    
    
    (444
    )
    
    
    (4,839
    )
    
    
    (284
    )
    
    
    (26
    )Other income (expense), net
    
    
    (3,667
    )
    
    
    (266
    )
    
    
    59
    
    
    
    3
    
    
    
    (6,210
    )Loss before income taxes
    
    
    (9,786
    )
    
    
    (710
    )
    
    
    (4,780
    )
    
    
    (281
    )
    
    
    (105
    )Income tax
benefit (expense)
    
    
    3,865
    
    
    
    280
    
    
    
    (3
    )
    
    
    
    
    
    
    128,933Net loss from continuing operations
    
    $
    (5,921
    )
    
    
    (430
    )
    
    $
    (4,783
    )
    
    
    (281
    )
    
    
    (24
    )
   20




---



##### Table of Contents



Pharmaceuticals Business Unit
  Three months ended October 31,2006
    
    2005
    
    ChangeNet revenues
    
    $
    1,378
    
    
    $
    1,700
    
    
    
    (19
    )%Gross profit
    
    
    539
    
    
    
    1,048
    
    
    
    (49
    )Gross profit %
    
    
    39
    %
    
    
    62
    %Loss from continuing operations before income taxes.
    
    
    (1,700
    )
    
    
    (706
    )
    
    
    (123
    )
    Biotechnology Business Unit
  Three months ended October 31,2006
    
    2005
    
    ChangeNet revenues
    
    $
    
    
    
    $
    Research and development
    
    
    1,535
    
    
    
    1,680
    
    
    
    (9
    )%Loss from operations before income taxes
    
    
    (2,118
    )
    
    
    (2,097
    )
    
    
    (1
    )
 21




---



##### Table of Contents



Inflation and Seasonality
  Liquidity and Capital Resources
      Three months ended October 31,2006
    
    2005Net cash used in operating activities
    
    $
    (4,104
    )
    
    $
    (1,974
    )Net provided by (used in) investing activities
    
    
    37,734
    
    
    
    (785
    )Net cash (used in) provided by financing activities
    
    
    (22,935
    )
    
    
    127
 October 31, 2006
    
    July 31, 2006Cash and cash equivalents
    
    $
    14,653
    
    
    $
    3,958Working capital
    
    
    10,403
    
    
    
    (6,854
    )Current ratio
    
    
    2.1
    
    
    
    0.8
 22




---



##### Table of Contents



Operating Activities
  Investing Activities
  Financing Activities
  Credit Facility
  Industrial Development Revenue Bonds
  Private Placement
 
  a.
    
    9,100,000 shares of our common stock for $1.75 per share (the Shares);b.
    
    $12,075,000 in aggregate principal amount of 12% Unsecured Convertible Notes, which
convert into shares of our common stock at a conversion price of $1.75 per share following
approval by our shareholders (the Unsecured Notes);c.
    
    Warrants to purchase approximately 5,403,000 shares of our common stock, which are
exercisable starting in May 2007 for five years at an exercise price of $2.21 per share
(the Initial Warrants); andd.
    
    Warrants to purchase approximately 3,105,000 shares of our common stock, which are
exercisable for five years at an exercise price of $2.21 per share following approval by
our shareholders (the Additional Warrants).
  a.
    
    $12,000,000 of 6% Senior Secured Convertible Notes (the Secured Notes); andb.
    
    Warrants to purchase approximately 1,909,000 shares of our common stock, which are exercisable
for five years at an exercise price of $2.21 per share following approval by our
shareholders (the Secured Note Warrants).
 23




---



##### Table of Contents



a.
    
    at the end of each fiscal quarter commencing with the fiscal quarter ending January 31,
2007, an unrestricted balance of cash (including cash equivalents and excluding cash from
any working capital line of credit) of not less than $4,500,000, or $10,500,000 in the
event our Peridex® product line is divested;b.
    
    for each of the fiscal quarters ending January 31, 2008 and April 30, 2008, EBITDA of
at least $1, excluding certain costs associated with the development and marketing of
OraTest; provided, however, that if our Peridex® product line is divested the EBITDA target
will be reduced by $1,500,000 on an annualized basis;c.
    
    for the fiscal quarter ended July 31, 2008, GAAP net income of at least $1, excluding
certain costs associated with the development and marketing of OraTest; provided, however,
that if our Peridex® product line is divested the net income target will be reduced by
$1,500,000 on an annualized basis; andd.
    
    for each fiscal quarter commencing with the fiscal quarter ending October 31, 2008, net
income of at least $1.
   a.
    
    $12,075,000 aggregate principal amount of the Unsecured Convertible Notes will not
convert into shares of common stock and the entire outstanding balance of such notes will
be due and payable in May 2007;b.
    
    we will not be able to issue up to 6,232,792 Additional Warrants, Secured Note Warrants
and Roth Warrants that are expected to be issued in the Private Placement;c.
    
    we will be in default with respect to the $12,000,000 of the Secured Notes as failure
to obtain shareholder approval is an event of default; andd.
    
    we will be subject to those covenants and operating restrictions contained in its
Unsecured Convertible Notes and Secured Notes until the repayment of such notes.
   24




---



##### Table of Contents



PharmaBio Investment
  Off-Balance Sheet Financing Arrangements
  Disclosures about Contractual Obligations and Commercial Commitments
  Remaining2007
    
    
    2008 & 2009
    
    
    2010 & 2011
    
    
    Thereafter
    
    
    TotalLong-term debt
    
    $
    
    
    
    $
    500
    
    
    $
    
    
    
    $
    
    
    
    $
    500Operating leases
    
    
    253
    
    
    
    613
    
    
    
    243
    
    
    
    
    
    
    
    1,109Capital lease obligations
    
    
    21
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    51Purchase obligations
    
    
    270
    
    
    
    1,970
    
    
    
    
    
    
    
    
    
    
    
    2,240Total
    
    $
    544
    
    
    $
    3,113
    
    
    $
    243
    
    
    $
    
    
    
    $
    3,900
   Summary of Critical Accounting Policies and Estimates
  25




---



##### Table of Contents



Accounting for Income Taxes
      EBITDA
   Reconciliation of GAAP Measures to Non-GAAP Measures
Unaudited
(in thousands)
 Three months ended October 31,2006
    
    
    2005EBITDA
    
    $
    5,290
    
    
    $
    (4,321
    )Interest income
    
    
    125
    
    
    
    83Interest expense
    
    
    (5,064
    )
    
    
    (52
    )Depreciation and amortization
    
    
    (597
    )
    
    
    (709
    )Income tax expense
    
    
    (12
    )
    
    
    (3
    )Net income (loss)
    
    $
    (258
    )
    
    $
    (5,002
    )
 Recent Accounting Pronouncements
 Amendment of
FASB Staff Position FAS 123(R)-1. Classification and Measurement of Freestanding Financial Instruments
Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R).
 26




---



##### Table of Contents



Quantifying Misstatements in Current Year Financial Statements, Accounting Changes and Error Corrections.
 Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No.
109 Accounting for Income Taxes.
  27




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
   
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures.
  Changes in Internal Control over Financial Reporting
  
 Part II  Other Information
 
 Item 1. Legal Proceedings.
    28




---



##### Table of Contents



Item 1A. Risk Factors.
  Trends, Risks and Uncertainties Related to Our Business
 Obtaining regulatory approvals for our products is costly and uncertain.
   We may be unable to obtain FDA approval, or to establish a market, for
OraTest ® in the United States.
   The sale of the Nutraceuticals Business Unit reduced our revenue by approximately 76%.
  29




---



##### Table of Contents



We may fail to realize the anticipated cost savings, revenue enhancements, product
focus, or other benefits expected from our recent disposition of the Nutraceuticals Business Unit
and subsequent acquisition of Pro-Dentec®.
  We have incurred substantial expenses and committed valuable time related to the recent
disposition of our Nutraceuticals Business Unit and our ability to successfully execute our
business plan is dependent on our ability to obtain adequate financing.
  We are dependent on a few key products and our growth is dependent on the development of
new products.
    30




---



##### Table of Contents



Our proprietary rights may prove difficult to enforce.
  We have historically been, and will probably be in the future, dependent on a few key
customers.
  We are dependent on our senior management and other key personnel.
  We and our products are subject to regulatory oversight that could substantially
interfere with our ability to do business.
  We are at risk with respect to product liability claims.
  We face significant competition that could adversely affect our results of operation and
financial condition.
  31




---



##### Table of Contents



If the use of our technology is determined to infringe on the intellectual property rights of
others, our business could be harmed.
    We require certain raw materials for our manufacturing processes that may only be
acquired through limited sources.
  If we are unable to obtain adequate funds on acceptable terms, we may not be able to
develop and market our present and potential products.
  We have, in the past, received minor deficiencies from regulatory agencies related to
our manufacturing facilities.
  32




---



##### Table of Contents



Failure to obtain stockholder approval for an increase in authorized capital and the conversion of
our Unsecured Notes and Secured Notes will adversely affect our financial health and may create an
event of default under the Secured Notes.
    Our substantial indebtedness could adversely affect our financial health and prevent us from
fulfilling our payment obligations.
    
    
    making it more difficult for us to satisfy our obligations with respect to the Unsecured Notes and Secured Notes;
    
    increasing our vulnerability to general adverse economic and industry conditions;
    
    limiting our flexibility in planning for, or reacting to, changes in our business and our industry;
    
    restricting us from making strategic acquisitions, introducing new products or exploiting business opportunities;
    
    requiring us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, which will reduce the amount of our cash flow available
for other purposes, including capital expenditures and other general corporate purposes;
    
    requiring us to sell debt securities or to sell some of our core assets, possibly on unfavorable terms;
    
    limiting our ability to obtain additional financing; and
    
    placing us at a possible competitive disadvantage compared to our competitors that have less debt.
 Our debt instruments contain restrictive covenants that could adversely affect our business by
limiting our flexibility.
  33




---



##### Table of Contents



Trends, Risks and Uncertainties Related to Our Capital Stock
 The Private Placement and other financing arrangements or corporate events could significantly
dilute existing ownership.
  In the past, we have experienced volatility in the market price of our common stock and
we may experience such volatility in the future.
  Our Board of Directors may take actions which could dilute current equity ownership or prevent or
delay a change in our control.
   
 Item 2. Unregistered Sales of Securities and Use of Proceeds.
  
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders
  34




---



##### Table of Contents



For
    
    Against
    
    Abstain
    
    Not Voted24,552,181
    
    
    1,295,203
    
    
    
    116,765
    
    
    
    20,043,444
  For
    
    Against
    
    Abstain
    
    Not Voted24,328,051
    
    
    1,329,046
    
    
    
    307,052
    
    
    
    20,043,444
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
  ExhibitNumber
    
    Description4.1
    
    Form of 12% Unsecured Note due May 2007 (incorporated by reference to Exhibit 4.1 of Form 8-K filed
December 4, 2006)4.2
    
    Form of 6% Senior Secured Note due November 2009 (incorporated by reference to Exhibit 4.2 of Form 8-K
filed December 4, 2006)4.3
    
    Form of Initial Warrant (incorporated by reference to Exhibit 4.3 of Form 8-K filed December 4, 2006)4.4
    
    Form of Additional Warrant (incorporated by reference to Exhibit 4.4 of Form 8-K filed December 4, 2006)4.5
    
    Form of Secured Note Warrant (incorporated by reference to Exhibit 4.5 of Form 8-K filed December 4, 2006)4.6
    
    Registration Rights Agreement for the Shares, Unsecured Notes, Initial Warrants and Additional Warrants,
dated November 28, 2006, by and among Zila, Inc. and the investor parties thereto (incorporated by
reference to Exhibit 4.6 of Form 8-K filed December 4, 2006)4.7
    
    Registration Rights Agreement for the Secured Notes and Secured Note Warrants, dated November 28, 2006,
by and among Zila, Inc. and the investor parties thereto (incorporated by reference to Exhibit 4.7 of
Form 8-K filed December 4, 2006)10.1
    
    Stock Purchase Agreement by and between NBTY, Inc. and Zila, Inc. with respects to all of the outstanding
capital stock of Zila Nutraceuticals, Inc. dated August 13, 2006 (incorporated by reference to Appendix A
of the Proxy Statement on Schedule 14A filed September 6, 2006)10.2
    
    Third Amendment to Credit Agreement dated August 18, 2006 by and among Zila, Inc., Zila Technical, Inc.,
Zila Biotechnology, Inc., Zila Nutraceuticals, Inc., Zila Pharmaceuticals, Inc., and Zila Swab
Technologies, Inc. and Black Diamond Commercial Finance, L.L.C. (incorporated by reference to Exhibit
10.1 of Form 8-K filed August 24, 2006)10.3
    
    Fourth Amendment to Credit Agreement dated August 31, 2006 by and among Zila, Inc., Zila Technical, Inc.,
Zila Biotechnology, Inc., Zila Nutraceuticals, Inc., Zila Pharmaceuticals, Inc., and Zila Swab
Technologies, Inc. and Black Diamond Commercial Finance, L.L.C. (incorporated by reference to Exhibit
10.1 of Form 8-K filed September 7, 2006)10.4
    
    Fifth Amendment to Credit Agreement dated September 25, 2006 by and among Zila, Inc., Zila Technical,
Inc., Zila Biotechnology, Inc., Zila Nutraceuticals, Inc., Zila Pharmaceuticals, Inc., and Zila Swab
Technologies, Inc. and Black Diamond Commercial Finance, L.L.C. (incorporated by reference to Exhibit
10.1 of Form 8-K filed September 29, 2006)
 35




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##### Table of Contents



ExhibitNumber
    
    Description10.5
    
    Amended and Restated Warrant to Purchase Shares of Common Stock, dated September 25, 2006, issued to BDC
Finance, L.L.C. by Zila, Inc. (incorporated by reference to Exhibit 10.2 of Form 8-K filed September 29,
2006)10.6
    
    First Amendment to Stock Purchase Agreement, dated September 28, 2006, by and between Zila, Inc. and
NBTY, Inc. (incorporated by reference to Exhibit 10.1 of Form 8-K/A filed October 4, 2006)10.7
    
    Purchase Agreement for the Shares, Unsecured Notes, Initial Warrants and Additional Warrants, dated
November 13, 2006, by and among Zila, Inc. and the investors thereto (incorporated by reference to
Exhibit 10.1 of Form 8-K filed November 17, 2006)10.8
    
    Purchase Agreement for the Secured Notes and Secured Note Warrants, dated November 13, 2006, by and among
Zila, Inc. and the investors thereto (incorporated by reference to Exhibit 10.2 of Form 8-K filed
November 17, 2006)10.9
    
    Agreement and Plan of Merger, dated November 13, 2006, by and among Zila, Inc., Zila Merger, Inc.,
Professional Dental Technologies, Inc. and certain stockholders thereto (incorporated by reference to
Exhibit 10.3 of Form 8-K filed November 17, 2006)10.10
    
    Pledge and Security Agreement, dated November 28, 2006, by and among Zila, Inc., Zila Biotechnology,
Inc., Zila Pharmaceuticals, Inc., Zila Technical, Inc., Zila Limited, Balyasny Asset Management, L.P. and
the investor parties thereto (incorporated by reference to Exhibit 10.1 of Form 8-K filed December 4,
2006)31.1*
    
    Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith)31.2*
    
    Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith)32.1**
    
    Certification of the Chief Executive Officer and the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)32.2**
    
    Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
 
 *
    
    Filed herewith**
    
    Furnished herewith 36




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##### Table of Contents



SIGNATURES
  Date: December 7, 2006
    By:
    /s/Andrew A. StevensAndrew A. StevensVice President and Chief Financial Officer(Principal Financial Officer) 37




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description4.1
    
    Form of 12% Unsecured Note due May 2007 (incorporated by reference to Exhibit 4.1 of Form 8-K filed
December 4, 2006)4.2
    
    Form of 6% Senior Secured Note due November 2009 (incorporated by reference to Exhibit 4.2 of Form 8-K
filed December 4, 2006)4.3
    
    Form of Initial Warrant (incorporated by reference to Exhibit 4.3 of Form 8-Kfiled December 4, 2006)4.4
    
    Form of Additional Warrant (incorporated by reference to Exhibit 4.4 of Form 8-K filed December 4, 2006)4.5
    
    Form of Secured Note Warrant (incorporated by reference to Exhibit 4.5 of Form 8-K filed December 4, 2006)4.6
    
    Registration Rights Agreement for the Shares, Unsecured Notes, Initial Warrants and Additional Warrants,
dated November 28, 2006, by and among Zila, Inc. and the investor parties thereto (incorporated by
reference to Exhibit 4.6 of Form 8-K filed December 4, 2006)4.7
    
    Registration Rights Agreement for the Secured Notes and Secured Note Warrants, dated November 28, 2006,
by and among Zila, Inc. and the investor parties thereto (incorporated by reference to Exhibit 4.7 of
Form 8-K filed December 4, 2006)10.1
    
    Stock Purchase Agreement by and between NBTY, Inc. and Zila, Inc. with respects to all of the outstanding
capital stock of Zila Nutraceuticals, Inc. dated August 13, 2006 (incorporated by reference to Appendix A
of the Proxy Statement on Schedule 14A filed September 6, 2006)10.2
    
    Third Amendment to Credit Agreement dated August 18, 2006 by and among Zila, Inc., Zila Technical, Inc.,
Zila Biotechnology, Inc., Zila Nutraceuticals, Inc., Zila Pharmaceuticals, Inc., and Zila Swab
Technologies, Inc. and Black Diamond Commercial Finance, L.L.C. (incorporated by reference to Exhibit
10.1 of Form 8-K filed August 24, 2006)10.3
    
    Fourth Amendment to Credit Agreement dated August 31, 2006 by and among Zila, Inc., Zila Technical, Inc.,
Zila Biotechnology, Inc., Zila Nutraceuticals, Inc., Zila Pharmaceuticals, Inc., and Zila Swab
Technologies, Inc. and Black Diamond Commercial Finance, L.L.C. (incorporated by reference to Exhibit
10.1 of Form 8-K filed September 7, 2006)10.4
    
    Fifth Amendment to Credit Agreement dated September 25, 2006 by and among Zila, Inc., Zila Technical,
Inc., Zila Biotechnology, Inc., Zila Nutraceuticals, Inc., Zila Pharmaceuticals, Inc., and Zila Swab
Technologies, Inc. and Black Diamond Commercial Finance, L.L.C. (incorporated by reference to Exhibit
10.1 of Form 8-K filed September 29, 2006)10.5
    
    Amended and Restated Warrant to Purchase Shares of Common Stock, dated September 25, 2006, issued to BDC
Finance, L.L.C. by Zila, Inc. (incorporated by reference to Exhibit 10.2 of Form 8-K filed September 29,
2006)10.6
    
    First Amendment to Stock Purchase Agreement, dated September 28, 2006, by and between Zila, Inc. and
NBTY, Inc. (incorporated by reference to Exhibit 10.1 of Form 8-K/A filed October 4, 2006)10.7
    
    Purchase Agreement for the Shares, Unsecured Notes, Initial Warrants and Additional Warrants, dated
November 13, 2006, by and among Zila, Inc. and the investors thereto (incorporated by reference to
Exhibit 10.1 of Form 8-K filed November 17, 2006)10.8
    
    Purchase Agreement for the Secured Notes and Secured Note Warrants, dated November 13, 2006, by and among
Zila, Inc. and the investors thereto (incorporated by reference to Exhibit 10.2 of Form 8-K filed
November 17, 2006)10.9
    
    Agreement and Plan of Merger, dated November 13, 2006, by and among Zila, Inc., Zila Merger, Inc.,
Professional Dental Technologies, Inc. and certain stockholders thereto (incorporated by reference to
Exhibit 10.3 of Form 8-K filed November 17, 2006)
 38




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##### Table of Contents



ExhibitNumber
    
    Description10.10
    
    Pledge and Security Agreement, dated November 28, 2006, by and among Zila, Inc., Zila Biotechnology,
Inc., Zila Pharmaceuticals, Inc., Zila Technical, Inc., Zila Limited, Balyasny Asset Management, L.P. and
the investor parties thereto (incorporated by reference to Exhibit 10.1 of Form 8-K filed December 4,
2006)31.1*
    
    Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith)31.2*
    
    Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith)32.1**
    
    Certification of the Chief Executive Officer and the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)32.2**
    
    Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
 
 *
    
    Filed herewith**
    
    Furnished herewith 39