<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                                    FORM 10-Q
(Mark One)

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


For the quarterly period ended January 31, 2000 or

[X]  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)
<TABLE>
<S>                                                <C>
              Delaware                                    No. 86-0619668
(State or Other Jurisdiction of incorporation      (IRS Employer Identification number)
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)
</TABLE>

         Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
         Yes  [X]    No.[ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

         The number of shares of the Company's common stock outstanding at
January 31, 2000 was 43,138,055 shares.

                                                                Exhibit Index 18
                                                                  Total pages 19


<PAGE>   2
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                                                                                    Page no.
                                                                                                    --------
<S>         <C>                                                                                     <C>
PART   I    FINANCIAL INFORMATION

   Item 1.  Financial Statements (Unaudited)

            Condensed consolidated balance sheets as of January 31, 2000 and July 31, 1999              3

            Condensed consolidated statements of operations for the quarter and six months ended
            January 31, 2000 and 1999                                                                   4

            Condensed consolidated statements of cash flows for the six months ended January 31,
            2000 and 1999                                                                               5

            Notes to condensed consolidated financial statements                                       6-10

   Item 2.  Management's discussion and analysis of financial condition and results of operations      11-16

PART II     OTHER INFORMATION

   Item 1.  Legal proceedings                                                                          16

   Item 5.  Other information                                                                          17

   Item 6.  Exhibits and reports on Form 8-K                                                           17-18

            SIGNATURES                                                                                 19

</TABLE>

                                       2
<PAGE>   3
ZILA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                        January              July
                                                                                       31, 2000          31, 1999
                                                                                    -----------       -----------
ASSETS

CURRENT ASSETS:
<S>                                                                                 <C>               <C>
  Cash and cash equivalents                                                         $ 8,592,888       $ 5,770,970
  Trade receivables - net                                                             8,913,587         8,741,283
  Inventories - net                                                                  10,125,513        11,405,883
  Prepaid expenses and other current assets                                           1,619,848         1,126,773
  Deferred income taxes                                                                 244,788         3,705,715
                                                                                    -----------       -----------

         Total current assets                                                        29,496,624        30,750,624
                                                                                    -----------       -----------

PROPERTY AND EQUIPMENT - Net                                                          5,639,153         5,680,281
PURCHASED TECHNOLOGY RIGHTS - Net                                                     5,819,195         6,037,415
GOODWILL - Net                                                                       13,314,833        15,679,969
TRADEMARKS - Net                                                                     10,521,105        10,782,029
CASH HELD BY TRUSTEE                                                                  5,027,511         4,834,755
OTHER ASSETS                                                                          3,629,047         2,790,860
                                                                                    -----------       -----------


TOTAL                                                                               $73,447,468       $76,555,933
                                                                                    ===========       ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                                  $ 4,190,982       $ 3,680,639
  Accrued liabilities                                                                 3,421,371         2,760,735
  Deferred revenue                                                                       27,500           982,037
  Short-term borrowings                                                                 214,596           116,950
  Current portion of long-term debt                                                     185,087         1,164,399
                                                                                    -----------       -----------

         Total current liabilities                                                    8,039,536         8,704,760

LONG-TERM DEBT - Net of current portion                                               5,333,593         9,577,755
                                                                                    -----------       -----------

          Total liabilities                                                          13,373,129        18,282,515
                                                                                    -----------       -----------

COMMITMENTS AND CONTINGENCIES

SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK:
  Issued 30,000; outstanding 500 shares (January 31, 2000) and
  7,482 shares (July 31, 1999); liquidation preference value: $1,220 per share          610,001         8,787,191
                                                                                    -----------       -----------

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
  43,138,055 shares (January 31, 2000) and 40,378,588 shares (July 31, 1999)             43,138            40,379
  Capital in excess of par value                                                     77,830,871        69,395,976
  Treasury stock, at cost (125,000 shares)                                             (372,413)
  Deficit                                                                           (18,036,833)      (19,949,703)
                                                                                    -----------       -----------

                                                                                     59,464,763        49,486,652
  Less 42,546 common shares held by wholly-owned
    subsidiary (at cost)                                                                   (425)             (425)
                                                                                    -----------       -----------

        Total shareholders' equity                                                   59,464,338        49,486,227
                                                                                    -----------       -----------

TOTAL                                                                               $73,447,468       $76,555,933
                                                                                    ===========       ===========
</TABLE>
            See notes to condensed consolidated financial statements.

                                        3
<PAGE>   4
ZILA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
QUARTERS AND SIX MONTHS ENDED JANUARY 31, 2000 AND 1999

<TABLE>
<CAPTION>


                                                      Quarters ended                    Six months ended
                                           --------------------------------      -------------------------------
                                            January 31,        January 31,       January 31,         January 31,
                                                   2000               1999               2000               1999
                                           ------------       ------------       ------------       ------------
<S>                                        <C>                <C>                <C>                <C>
NET REVENUES                               $ 20,216,797       $ 18,121,619       $ 39,388,390       $ 34,624,427
                                           ------------       ------------       ------------       ------------

OPERATING COSTS AND EXPENSES:
  Cost of products sold                      10,266,743          8,625,052         19,743,279         16,483,698
  Selling, general and administrative         8,287,478          8,390,430         17,031,849         15,221,291
  Research & development                        372,772          1,386,347          1,102,899          2,167,438
  Depreciation and amortization                 804,971            855,555          1,721,853          1,741,873
                                           ------------       ------------       ------------       ------------
                                             19,731,964         19,257,384         39,599,880         35,614,300
                                           ------------       ------------       ------------       ------------
INCOME (LOSS) FROM OPERATIONS                   484,833         (1,135,765)          (211,490)          (989,873)
                                           ------------       ------------       ------------       ------------

OTHER INCOME (EXPENSES):
  Interest income                                97,239             56,373            175,005            133,177
  Interest expense                              (44,712)           (60,758)          (171,874)          (130,980)
  Other (expense) income                         (9,083)            (7,148)           (23,958)              (114)
  Realized gain on sale of assets             4,519,915                             4,659,127
                                           ------------       ------------       ------------       ------------
                                              4,563,359            (11,533)         4,638,300              2,083
                                           ------------       ------------       ------------       ------------
INCOME (LOSS) BEFORE INCOME TAXES             5,048,192         (1,147,298)         4,426,810           (987,790)

INCOME TAX (EXPENSE) BENEFIT                 (3,083,940)              --           (2,513,940)           596,000
                                           ------------       ------------       ------------       ------------
NET INCOME (LOSS)                          $  1,964,252       $ (1,147,298)      $  1,912,870       $   (391,790)
                                           ============       ============       ============       ============
NET INCOME (LOSS)  PER SHARE - BASIC       $       0.05       $      (0.03)      $       0.05       $      (0.01)
                                           ============       ============       ============       ============
NET INCOME (LOSS) PER SHARE - DILUTED      $       0.05       $      (0.03)      $       0.05       $      (0.01)
                                           ============       ============       ============       ============
BASIC SHARES OUTSTANDING                     41,961,935         37,655,846         41,636,741         36,142,529
EQUIVALENT SHARES                               382,030               --              388,908               --
                                           ------------       ------------       ------------       ------------
BASIC AND DILUTED SHARES OUTSTANDING         42,343,965         37,655,846         42,025,649         36,142,529
                                           ============       ============       ============       ============
</TABLE>
            See notes to condensed consolidated financial statements.



                                       4
<PAGE>   5
ZILA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>


                                                                                                        2000               1999
                                                                                                ------------       ------------
OPERATING ACTIVITIES:
<S>                                                                                             <C>                <C>
     Net income (loss)                                                                          $  1,912,870       $   (391,790)
     Adjustments to reconcile net income (loss) to net cash provided by
         (used in) operating activities:
         Depreciation and amortization                                                             1,721,853          1,741,873
         Gain on sale of assets                                                                   (4,659,127)              --
         Deferred income taxes                                                                     2,478,367           (631,600)
         Other                                                                                        20,089             69,666
         Change in operating assets and liabilities excluding the effects of dispositions:
            Receivables - net                                                                     (1,003,529)          (967,581)
            Inventories                                                                              188,071           (620,452)
            Prepaid expenses and other assets                                                       (398,264)          (728,760)
            Accounts payable and accrued expenses                                                  1,052,751           (673,342)
            Deferred revenue                                                                         110,781            220,027
                                                                                                ------------       ------------

              Net cash provided by (used in) operating activities                                  1,423,862         (1,981,959)
                                                                                                ------------       ------------

INVESTING ACTIVITIES:
     Net purchases of property and equipment                                                        (822,586)        (1,149,723)
     Net proceeds from sale of assets                                                              7,749,927
     Purchases of intangible assets                                                                  (21,418)          (349,468)
                                                                                                ------------       ------------

            Net cash provided by (used in) investing activities                                    6,905,923         (1,499,191)
                                                                                                ------------       ------------

FINANCING ACTIVITIES:
     Net proceeds (payments) from short-term borrowings                                               97,646            (18,695)
     Net proceeds from issuance of common stock                                                       14,963            234,474
     Acquisition of treasury stock                                                                  (372,413)              --
     Net proceeds from long-term debt                                                                                 1,200,000
     Reduction of debt                                                                            (5,248,063)        (1,051,208)
                                                                                                ------------       ------------

            Net cash (used in) provided by financing activities                                   (5,507,867)           364,571
                                                                                                ------------       ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                               2,821,918         (3,116,579)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                  $  5,770,970       $  5,241,201
                                                                                                ------------       ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                                        $  8,592,888       $  2,124,622
                                                                                                ============       ============



CASH PAID FOR INTEREST                                                                          $    147,285       $     61,314
                                                                                                ============       ============

CASH PAID FOR INCOME TAXES                                                                      $       --         $       --
                                                                                                ============       ============

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
     FINANCING ACTIVITIES FOR 2000 AND 1999:


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

     Conversion of Series A Convertible Redeemable Preferred stock                              $  8,177,190       $ 18,938,810
                                                                                                ------------       ------------
</TABLE>
            See notes to condensed consolidated financial statements.

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

1.  BASIS OF PRESENTATION

         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"), Zila Technologies, Inc. formerly 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 its subsidiaries
         (collectively referred to herein as "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.  NET INCOME (LOSS) PER SHARE

         The following is a reconciliation of the numerator and denominator of
         basic and diluted earnings per share:
<TABLE>
<CAPTION>
                                                         For the three months ended            For the six months ended
                                                                  January 31,                          January 31,
                                                              2000               1999               2000                 1999
                                                      ------------       ------------       ------------       --------------
<S>                                                   <C>                <C>                <C>                <C>
Net income (loss)                                      $ 1,964,252       $ (1,147,298)      $  1,912,870       $     (391,790)

Average outstanding common shares                       41,961,935         37,655,846         41,636,741           36,142,529
Basic net income (loss) per share                      $      0.05       $      (0.03)      $       0.05       $        (0.01)

Diluted net income (loss) per share:
Net income (loss) available for diluted earnings      $  1,964,252       $ (1,147,298)      $  1,912,870       $     (391,790)
Average outstanding common shares from above            41,961,935         37,655,846         41,636,741           36,142,529
Additional dilutive shares related to stock
options and warrants                                       189,856                               196,734
Additional dilutive shares related to
convertible preferred stock                                192,174                               192,174
Average outstanding and potentially dilutive
common shares                                           42,343,965                            42,025,649
Dilutive net income (loss)  per share                 $       0.05       $      (0.03)      $       0.05       $        (0.01)
</TABLE>

         Since a loss was incurred for the quarter and six months ended January
         31, 1999, options and warrants to purchase shares of common stock and
         shares related to convertible preferred stock were

                                       6
<PAGE>   7
         not included in the computation of dilutive net income per share
         because their effect would be antidilutive.

3.  INVENTORIES

         Inventories consist of the following:
<TABLE>
<CAPTION>

                           January 31,         July 31,
                                 2000             1999
                          -----------         --------
<S>                     <C>                <C>
Finished goods           $ 7,379,740        $ 7,531,175
Raw materials              2,896,773          4,174,321
Inventory reserves          (151,000)          (299,613)
                        ------------        -----------
                         $10,125,513        $11,405,883
                        ============        ===========
</TABLE>
4.  INCOME TAXES

         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. During the quarter ended October
         31, 1999, the Company reduced its valuation allowance by $820,000. In
         the six months ended January 31, 2000, the Company recorded income tax
         expense of $2,513,940 which is net of the income tax benefit of
         $820,000 recorded in the first quarter of fiscal year 2000 ($250,000 of
         which was attributable to the exercise of common stock options in prior
         years and therefore was credited to capital in excess of par value). In
         the six months ended January 31, 1999, the Company reduced its
         valuation allowance resulting in an income tax benefit of $910,000
         ($250,000 of which was attributable to the exercise of common stock
         options in prior years and therefore was credited to capital in excess
         of par value), which was partially offset by an income tax expense of
         $64,000 related to the first quarter of fiscal year 1999.

5.  NEW ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("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,
         2000. The Company has not completed evaluating the impact of
         implementing the provisions of SFAS No. 133.

6.  REDEEMABLE PREFERRED STOCK

         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. 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.
         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

                                       7
<PAGE>   8
         accreted to its redemption value. During the first six months of fiscal
         year 2000, 6,982 shares of the Preferred Stock were converted into
         common stock.

7. DISPOSITION OF ASSETS

         On October 28, 1999, Cygnus completed the sale of substantially all of
         its assets and certain liabilities to Procare Laboratories, Inc.
         ("Procare"), of Scottsdale, Arizona for approximately $4.0 million.
         Procare is controlled by the former owner and President of Cygnus,
         Egidio Cianciosi. The sale resulted in a $139,000 gain during the first
         quarter of fiscal year 2000.

         On December 20, 1999, the Company, through its wholly owned subsidiary,
         Integrated Dental Technologies, Inc. ("IDT"), completed the sale of
         substantially all of IDT's assets and liabilities related to its
         PracticeWorks division located in Gold River, California to InfoCure
         Corporation ("InfoCure"), of Atlanta, Georgia for approximately $4.65
         million. InfoCure is a national provider of healthcare practice
         management software products and services to targeted healthcare
         practice specialties and is listed on the NASDAQ under the symbol INCX.
         Under the terms of the agreement, ten percent (10%) of the sales price
         will be held in escrow for one year in order to secure the
         representations, warranties, and covenants made by the Company to
         InfoCure.

         The following unaudited pro forma condensed statement of operations
         data for the six months ended January 31, 2000, present historical
         statement of operations data for the Company, Cygnus and IDT as if the
         Cygnus and IDT transactions had occurred as of August 1, 1999. The pro
         forma data are not necessarily indicative of the financial position or
         results of operations which would actually have been reported had the
         transactions been consummated at the date mentioned above or which may
         be reported in the future.
<TABLE>
<CAPTION>

Unaudited Pro Forma Condensed Statement of Operations
Six months ended January 31, 2000
(in thousands except per share data)                                   Historical
                                                          -------------------------------------
                                                             Zila                                   Pro forma
                                                          Consolidated     Cygnus       IDT        Adjustments        Pro Forma
                                                          ------------   ----------  ----------    ---------------    ---------
                                                                             (a)         (a)           (b)
                                                                             ---         ---           ---
<S>                                                         <C>            <C>          <C>            <C>             <C>
Net revenues                                                $ 39,388       $    193     $  1,515                       $ 37,680
Cost of products sold                                         19,743            110           69                         19,564
Selling, general & administrative expenses                    17,032            491        1,188                         15,353
Research & development expenses                                1,103            155          120                            828
Depreciation & amortization                                    1,722            110           35                          1,577
(Loss) income from operations                                   (211)          (673)         103                            359
Other income (expense)                                         4,638                                      (4,659)           (21)
Income tax (expense) benefit                                  (2,514)                                     (2,761)           247
Net income (loss)                                              1,913           (673)         103          (1,898)           585

Net income per share (basic)                                $   0.05                                                    $  0.01
Basic shares outstanding                                      41,637                                                     41,637
Net income per share (diluted)                              $   0.05                                                    $  0.01
Diluted shares outstanding                                    42,026                                                     42,026
</TABLE>

(a)           Represents Cygnus and IDT balances for the six months ended
              January 31, 2000. These amounts are removed to reflect the sale of
              assets and the corresponding revenue and expenses thereby reducing
              the consolidated balances for pro forma purposes.

(b)           The Company believes that no pro forma adjustments are required to
              the transactions other than the elimination of the gain on the
              sale of the assets and the resulting income tax effect recorded in
              the consolidated statement of operations.

                                       8
<PAGE>   9
8. SEGMENT INFORMATION

         The Company is organized into three major product groups and further
         organized into six segments, all of which have distinct product lines,
         brand names and are managed as autonomous business units. The Company
         has identified the following segments: Pharmaceuticals, which includes
         Zila Pharmaceuticals, Inc.; OraTest products; Dental Supply, which
         includes Bio-Dental and Ryker Dental of Kentucky, Inc. (a subsidiary of
         Bio-Dental) which does business under the name Zila Dental Supply;
         Dental Software, which includes IDT, (a subsidiary of Bio-Dental) the
         distributor for PracticeWorks; Dental Imaging, which includes Cygnus
         and Nutraceuticals, which includes Oxycal. The Company evaluates
         performance and allocates resources to segments based on operating
         results. Corporate overhead expenses have been combined with the
         OraTest segment.

         The table below presents information about reported segments as of and
         for the six months ended January 31 (in thousands):
<TABLE>
<CAPTION>

                                                                Dental      Dental      Dental
                                  Pharmaceuticals    OraTest    Supply      Software    Imaging     Nutraceuticals   Total
<S>                               <C>              <C>          <C>         <C>         <C>         <C>            <C>
     Net revenues:
            2000                          $8,328        $62     $19,670      $1,515        $193          $9,620     $39,388
            1999                           8,642        243      14,924       2,249       1,018           7,548      34,624
     Income (loss) before
       income taxes:
            2000                           2,419    (5,045)         287       4,825       (734)           2,675       4,427
            1999                           2,898    (4,382)         356         254     (1,413)           1,299       (988)
     Depreciation and
       amortization:
            2000                             504        503         149          35         111             420       1,722
            1999                             505        436         147          49         191             414       1,742
     Total assets:
            2000                          13,805     18,225      11,760         470        (46)          29,233      73,447
            1999                          14,068     14,772       8,730       1,080       4,981          26,072      69,703
</TABLE>
9. COMMITMENTS AND CONTINGENCIES

         On November 2, 1999, the Company contracted with ILEX(TM) Oncology
         Services, Inc., a wholly owned subsidiary of ILEX(TM) Oncology, Inc. of
         San Antonio, Texas, for management of clinical research and liaison
         with the U.S. Food and Drug Administration related to the Company's
         pursuit of regulatory approval for the OraTest(R) oral cancer detection
         product. Current commitments under the agreement include estimated
         professional fees and related expenses of approximately $300,000. In
         addition, the Company expects to incur costs of approximately $500,000
         in the current fiscal year, related to studies associated with the
         Company's ongoing efforts to obtain FDA approval of OraTest(R).

         The Company and certain of its officers have been named as defendants
         in a consolidated First Amended Class Action Compliant filed July 6,
         1999 in the United States District Court for the District of Arizona,
         under the caption In re Zila Securities Litigation, No. CIV 99 0115 PHX
         EHC. The First Amended Class Action Compliant seeks damages in an
         unspecified amount on behalf of a class consisting of purchasers of the
         Company's securities from November 14, 1996 through January 13, 1999
         for alleged violations of the federal securities laws. Specifically,
         the plaintiffs allege that in certain public statements and filings
         with the Securities and Exchange Commission the defendants made false
         or misleading statements and concealed material adverse information
         related to OraTest(R) that artificially inflated the price of the
         Company's securities.


                                       9
<PAGE>   10
         The Company and the individual defendants deny all allegations of
         wrongdoing and are defending themselves vigorously. On September 10,
         1999, the Company and the individual defendants filed with the Court a
         motion to dismiss the First Amended Class Action Complaint in its
         entirety. On or about October 29, 1999, the plaintiffs filed with the
         court a response to the motion to dismiss. It is not possible to
         predict with any degree of certainty when the Court will rule on the
         defendants' motion to dismiss.

         On September 8, 1999, the Securities and Exchange Commission (the
         "Commission") entered an order directing an investigation entitled "In
         the Matter of Zila, Inc." The Commission is investigating whether (i)
         there were purchases or sales of securities of the Company by persons
         while in possession of material non-public information concerning the
         prospects that the Oncologic Drugs Advisory Committee for the FDA would
         recommend approval of the OraTest(R) NDA and whether the FDA would
         subsequently approve the NDA; (ii) such persons conveyed information
         regarding these matters to other persons who effected transactions in
         securities of the Company without disclosing the information; and (iii)
         there were false and misleading statements in press releases, filings
         with the Commission, or elsewhere concerning these matters. The Company
         does not believe it has violated any of the federal securities laws and
         is cooperating fully with the Commission in its investigation.

10.  STOCKHOLDERS' EQUITY

         During the quarter ended January 31, 2000, the Company began acquiring
         shares of its common stock in conjunction with a stock repurchase
         program announced in November 1999. That program authorized the
         repurchase of up to one million shares of Zila common stock from time
         to time on the open market depending on market conditions and other
         factors. The Company purchased 125,000 of common stock during the
         current quarter at an aggregate cost of $372,413.

                                       10
<PAGE>   11
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

                          ZILA, INC. AND SUBSIDIARIES

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. The words "believe," "expect," "anticipate," "intend," "estimate" and
other expressions, which are predictions of or indicate future events and trends
and which do not relate to historical matters, identify forward-looking
statements. 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, and readers are cautioned not to place undue
reliance on such forward-looking statements. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. 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, 1999
filed with the Securities and Exchange Commission.

COMPANY OVERVIEW:

         Zila is a worldwide manufacturer and marketer of pharmaceutical,
biomedical, dental and nutritional products. The Company has three major product
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 the OraTest(R) oral cancer detection system. The
Professional Products Group includes Zila Dental Supply, a national distributor
of professional dental supplies, Zila Technologies, Inc., formerly Cygnus
Imaging ("Cygnus"), a manufacturer and marketer of digital x-ray systems and
intraoral cameras, and Integrated Dental Technologies, Inc. ("IDT") which
distributed PracticeWorks, a dental practice management software product. The
Nutraceuticals Group is comprised of Oxycal Laboratories, Inc. ("Oxycal") and
its Inter-Cal subsidiary, which are manufacturers and distributors of a patented
and unique form of vitamin C under the trademark Ester-C(R) and of the
Palmettex(TM) botanical product.

         On October 28, 1999, Cygnus completed the sale of substantially all of
its assets and certain liabilities to Procare Laboratories, Inc. ("Procare"), of
Scottsdale, Arizona for approximately $4.0 million. Procare is controlled by the
former owner and President of Cygnus, Egidio Cianciosi. The sale resulted in a
$139,000 gain during the first quarter of fiscal year 2000. The sale did not
include the assumption by Procare of all of Cygnus's liabilities, and therefore,
no assurances can be given that claims will not be

                                       11
<PAGE>   12
made against the Company in the future arising out of Cygnus's former
operations. In management's opinion, such claims would not have a material
adverse effect on the Company's financial condition and results of operations.

         On December 20, 1999, the Company, through its wholly owned subsidiary,
Integrated Dental Technologies, Inc. ("IDT"), completed the sale of
substantially all of IDT's assets and liabilities related to its PracticeWorks
division located in Gold River, California to InfoCure, Corporation
("InfoCure"), of Atlanta, Georgia for approximately $4.65 million. InfoCure is a
national provider of healthcare practice management software products and
services to targeted healthcare practice specialties and is listed on the NASDAQ
under the symbol INCX. Under the terms of the agreement, ten percent (10%) of
the sales price will be held in escrow for one year in order to secure the
representations, warranties, and covenants made by the Company to InfoCure.


RESULTS OF OPERATIONS

THREE MONTHS ENDED JANUARY 31, 2000 AND 1999

                  Total net revenues grew 11.6% to $20.2 million for the quarter
ended January 31, 2000, compared to revenues of $18.1 million during the second
quarter of the prior fiscal year.

                  Net revenues for Zila Dental Supply increased 32.3% to $10.1
million for the quarter ended January 31, 2000 compared to $7.6 million for the
corresponding fiscal quarter in 1999. This increase was primarily attributable
to improved results in its full-service operations and an increase in internet
sales . Zila Pharmaceuticals had net revenues of $4.6 million for the quarter
ended January 31, 2000, a 7.9% increase over the $4.3 million recorded during
the corresponding quarter last year. The increase was due primarily to a 60%
increase in over the counter product sales, specifically Zilactin Toothache
Swabs and Zilactin-L product lines, when compared to the corresponding quarter
last year offset by a decline in sales of Peridex(R) of 40% due to increased
pricing pressures from generic equivalents.

                  Net revenues for Oxycal for the quarter ended January 31,
2000, were $5.1 million, a 9.1% increase when compared to the $4.7 million for
the corresponding 1999 fiscal quarter. Oxycal's international sales increased
approximately 95% during the current quarter as compared to the previous year
quarter due to improved economic conditions in the foreign markets. In addition,
Oxycal had increases in all of its domestic product lines when compared to the
fiscal 1999 quarter.

                  For the quarter ended January 31, 2000, cost of products sold
was $10.3 million, a 19.0% increase from $8.6 million for the quarter ended
January 31, 1999. Cost of products sold as a percentage of net revenues
increased to 50.8% in the quarter ended January 31, 2000 from 47.6% in the
quarter ended January 31, 1999. The increase for the quarter reflects the growth
of Zila Dental Supply as a percentage of total revenues, 50.0% for the quarter
ended January 31, 2000 compared to 42.1% for the previous year quarter. Gross
profit margins for Zila Dental Supply are lower as compared to the other
operating groups resulting in a higher cost of products sold as a percentage of
revenues. Overall changes in cost of product sold as a percentage of net
revenues for each business unit were not significantly different from the
previous year quarter.

                  The Company incurred selling, general and administrative
expenses of $8.3 million, or 41.0% of net revenues during the second quarter of
fiscal year 2000 compared to $8.4 million, or 46.3% of net revenue in the same
period in fiscal 1999. The decrease is attributable to a reduction in costs
related to the Cygnus and PracticeWorks businesses partially offset by increased
costs related to the expansion of the sales force and service department at Zila
Dental Supply, increased administrative costs related to

                                       12
<PAGE>   13
OraTest(R), increased marketing and selling expenses at Oxycal and increased
corporate legal, professional and insurance expenses.

                  Research and development expenses decreased $1.0 million or
73.1%, from $1.4 million in the second quarter of fiscal year 1999 to $373,000
for the same period in fiscal year 2000. The decrease was primarily due to a
reduction of costs related to the Cygnus and PracticeWorks businesses, reduced
expenses related to research and clinical activities associated with OraTest(R),
and reduced expenses related to the international approval of the OraTest(R)
product.

                  Depreciation and amortization expenses decreased $51,000 from
$856,000 in the second quarter of fiscal year 1999 to $805,000 for the same
period in fiscal year 2000. The decrease is due primarily to a reduction in
costs associated with the Cygnus and PracticeWorks businesses partially offset
by the depreciation of assets related to the Company's Tolonium Chloride
manufacturing facility that were placed in service August 1, 1999.

                  The Company recorded interest expense of $45,000 for the
quarter ended January 31, 2000 compared to $61,000 in the same period of the
previous year. The decrease was attributable to a reduction of debt obligations
during the fiscal year 2000 quarter as compared to the previous year quarter.

         For the quarter ended January 31, 2000, the Company recorded income tax
expense of $3.1 million. In the prior year quarter ended January 31, 1999, the
Company recorded no income tax benefit or expense.

                  For the quarter ended January 31, 2000, the Company had net
income of $2.0 million compared to a net loss of $1.1 million for the quarter
ended January 31, 1999. The increase is attributable to the gain on the sale of
the PracticeWorks assets and increased profitability in all of the Company's
operating groups.


SIX MONTHS ENDED JANUARY 31, 2000 AND 1999

                  Total net revenues grew 13.8% to $39.4 million for the six
months ended January 31, 2000, compared to revenues of $34.6 million for the
six months ended January 31, 1999.

                  Net revenues for Zila Dental Supply increased 31.8% to $19.7
million for the six months ended January 31, 2000, compared to $14.9 million for
the corresponding six months in 1999. This increase was primarily attributable
to an increase in full-service operations and increases in internet sales. Zila
Pharmaceuticals had net revenues of $8.3 million for the six months ended
January 31, 2000, a 3.6% decrease over the $8.6 million recorded during the
corresponding period last year. The decrease was due primarily to a 38.4%
decline in sales of Peridex(R) due to increased pricing pressures from generic
equivalents. Over the counter product sales increased 30.6% when compared to the
corresponding period last year primarily due to increased sales of the Toothache
Swab and Zilactin-L product lines.

                  Net revenues for Oxycal for the six months ended January 31,
2000, were $9.6 million, a 27.5% increase when compared to the $7.5 million for
the corresponding period in fiscal year 1999. Oxycal's international sales
increased 106.6% to $2.7 million during the first six months of the current
fiscal year as compared to the previous year amount due to improved economic
conditions in the foreign markets. In addition, Oxycal had increases in all of
its domestic product lines in the first six months of fiscal 2000 when compared
to the fiscal 1999 period.
                                       13
<PAGE>   14
                  For the six months ended January 31, 2000, cost of products
sold was $19.7 million, a 19.8% increase from $16.4 million for the six months
ended January 31, 1999. Cost of products sold as a percentage of net revenues
increased to 50.1% in the six months ended January 31, 2000 from 47.6% in the
corresponding 1999 period. The increase for the period reflects the growth of
Zila Dental Supply as a percentage total revenues, 49.9% for the six months
ended January 31, 2000 compared to 43.1% for same period of the previous fiscal
year. Gross profit margins for Zila Dental Supply are lower as compared to the
other operating groups resulting in a higher cost of products sold as a
percentage of revenues.

                  Cost of products sold as a percentage of net revenues for Zila
Dental Supply decreased slightly to 74.3% for the six months ended January 31,
2000 from 74.9% for the six months ended January 31, 1999 primarily due to an
increase in vendor rebate programs in the first quarter of fiscal 2000. Cost of
products sold as a percentage of net revenues for Zila Pharmaceuticals increased
to 19.7% in the six months ended January 31, 2000, compared to 16.8% for the
corresponding period in fiscal 1999. The increase for the quarter is a result of
a change in the mix of products sold. Cost of products sold as a percentage of
net revenues for Oxycal increased slightly to 28.8% in the six months ended
January 31, 2000 from 28.3% in the six months ended January 31, 1999. The
increase is a result of higher costs for raw materials for the current six
months as compared to the corresponding period last year.

                  The Company incurred selling, general and administrative
expenses of $17.0 million, or 43.2% of net revenues during the first six months
of fiscal year 2000 compared to $15.2 million, or 44.0% of net revenue in the
same period in fiscal 1999. The decrease in selling, general and administrative
expenses as a percentage of revenue is attributable to a reduction in costs
related to the Cygnus and PracticeWorks businesses partially offset by increased
costs related to the expansion of the sales force and service department at Zila
Dental Supply's full service branches, increased selling and administrative
costs related to the OraTest(R) international product launches, increased
marketing and selling expenses at Oxycal and increased corporate legal,
professional and insurance expenses.

                  Research and development expenses decreased $1.1 million or
49.1%, from $2.2 million incurred in the six months of fiscal year 1999 to $1.1
million for the same period in fiscal year 2000. The decrease was primarily due
to a reduction of costs incurred in the Cygnus and PracticeWorks businesses,
reduced expenses related to research and clinical activities associated with
OraTest(R), and reduced expenses related to the international approval of the
OraTest(R) product.

                  Depreciation and amortization expenses decreased $20,000 from
$1,742,000 in the six months of fiscal year 1999 to $1,722,000 for the same
period in fiscal year 2000. The decrease is due primarily to the reduction in
costs related to the Cygnus and PracticeWorks businesses partially offset by the
increase in the depreciation of assets associated with the Company's Tolonium
Chloride manufacturing facility that were placed in service August 1, 1999.

                  The Company recorded interest expense of $172,000 for the six
months ended January 31, 2000 compared to $131,000 in the same period of the
previous year. The increase was attributable to increases in debt obligations
incurred during the first quarter of fiscal year 2000 as compared to the
previous year period.


                  In the six months ended January 31, 2000, the Company recorded
income tax expense of $2,513,940 which is net of the income tax benefit of
$820,000 recorded in the first quarter of fiscal year 2000 ($250,000 of which
was attributable to the exercise of common stock options in prior years and
therefore was credited to capital in excess of par value). In the six months
ended January 31, 1999, the Company recorded an income tax benefit of $910,000
($250,000 of which was attributable to the

                                       14
<PAGE>   15
exercise of common stock options in prior years 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.


LIQUIDITY AND CAPITAL RESOURCES

         At January 31, 2000, the Company had cash and cash equivalents of $8.6
million and working capital of $21.5 million. The Company's current ratio
increased to 3.7 at January 31, 2000, from 3.5 at July 31, 1999. Cash and cash
equivalents are invested primarily in money market accounts.

         During the six months ended January 31, 2000, the Company generated
$1.4 million of cash from operating activities primarily from net income of $1.9
million plus non-cash items of $1.4 million, reduced by the net gain on sale of
assets of $1.9 million. Significant changes in operating assets and liabilities
were primarily comprised of an increase in accounts receivable of $1.0 million
as the sales in the current quarter were higher than sales in the July 1999
quarter, an increase in prepaid expenses and other assets of $398,000 related
to the establishment of an escrow account related to the sale of PracticeWorks,
partially offset by an increase in accounts payable and accrued expenses of $1.1
million.

         The Company generated cash from investing activities of $6.9 million
during the six months ended January 31, 2000, including $7.7 million net
proceeds from the sale of the Cygnus and PracticeWorks assets. These proceeds
were used to purchase property and equipment of $823,000, consisting of
manufacturing additions for Oxycal and OraTest(R) businesses. In addition, $5.5
million of the proceeds were used in financing activities for the six months
ended January 31, 2000. The Company retired outstanding debt of $5.2 million,
comprised of the final payment of $1.0 million made to The Procter & Gamble
Company related to the acquisition of the Peridex product line and $4.2 million
to repay in full its line of credit with Bank One. In addition, $372,000 was
used to repurchased 125,000 shares of Zila common stock on the open market.

         At January 31, 2000, the Company had federal income tax net operating
loss carryforwards of approximately $17.8 million, which expire in years 2000
through 2015.

         In February 1999, the Company increased its line of credit with Bank
One Corporation to $9 million and extended the commitment period to December 1,
2000. Additionally, the interest rate was reduced to the prime rate (8.25% at
January 31, 2000) plus .25%. At January 31, 2000, the Company had no borrowings
against the line of credit. Under the line of credit, the Company is required to
comply with financial covenants based on certain financial ratios. At January
31, 2000, the Company was in compliance with such covenants.

         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 until such time as construction costs are
incurred. The Bonds consist of $3.9 million Series A and $1.1 million Taxable
Series B which, as of January 31, 2000, carried interest rates of 3.50% and
5.94%, 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. During the
current quarter, Oxycal signed a $4 million contract with Joe E. Woods the
General Contractor for construction of the new facility which is expected
to be completed by mid-2000.

                                       15
<PAGE>   16
         On December 20, 1999, IDT completed the sale of substantially all of
its assets and liabilities related to its PracticeWorks division located in Gold
River, California to InfoCure Corporation ("InfoCure"), of Atlanta, Georgia for
approximately $4.65 million. InfoCure is a national provider of healthcare
practice management software products and services to targeted healthcare
practice specialties and is listed on the NASDAQ under the symbol INCX. Under
the terms of the agreement, ten percent (10%) of the sales price will be held in
escrow for one year in order to secure the representations, warranties, and
covenants made by the Company to InfoCure.

         On November 2, 1999, the Company contracted with ILEX(TM) Oncology
Services, Inc., a wholly owned subsidiary of ILEX(TM) Oncology, Inc. of San
Antonio, Texas, for management of clinical research and liaison with the U.S.
Food and Drug Administration related to the Company's pursuit of regulatory
approval for the OraTest(R) oral cancer detection product. Current commitments
under the agreement include estimated professional fees and related expenses of
approximately $300,000. In addition, the Company expects to incur costs of
approximately $500,000 in the current fiscal year, related to studies associated
with the Company's ongoing efforts to obtain FDA approval of OraTest(R).

         On November 10, 1999, the Company announced that the Company's Board of
Directors authorized the repurchase of up to one million shares of Zila common
stock. Purchases will be made on the open market depending on market conditions
and other factors. During the quarter ended January 31, 2000, 125,000 shares
were repurchased.

                  The Company believes that cash generated from its operations,
its investing activities and the availability of cash under its line of credit
are sufficient to finance its level of operations, anticipated capital
expenditures and stock repurchase program. The Company may require additional
financing to support the production and future OraTest(R) clinical, regulatory,
manufacturing and marketing costs or to make any significant acquisitions. There
can be no assurances that such funds would be available on terms acceptable to
the Company.


PART II - OTHER INFORMATION

ITEM 1.- Legal Proceedings

        The Company and certain of its officers have been named as defendants in
a consolidated First Amended Class Action Compliant filed July 6, 1999 in the
United States District Court for the District of Arizona, under the caption In
re Zila Securities Litigation, No. CIV 99 0115 PHX EHC. The First Amended Class
Action Compliant seeks damages in an unspecified amount on behalf of a class
consisting of purchasers of the Company's securities from November 14, 1996
through January 13, 1999 for alleged violations of the federal securities laws.
Specifically, the plaintiffs allege that in certain public statements and
filings with the Securities and Exchange Commission the defendants made false or
misleading statements and concealed material adverse information related to
OraTest(R) that artificially inflated the price of the Company's securities. The
Company and the individual defendants deny all allegations of wrongdoing and are
defending themselves vigorously. On September 10, 1999, the Company and the
individual defendants filed with the Court a motion to dismiss the First Amended
Class Action Complaint in its entirety. The plaintiffs have filed a response to
the motion to dismiss, and defendant has filed their reply memorandum in support
of the motion. It is not possible to predict with any degree of certainty when
the Court will rule on the defendants' motion to dismiss.

                                       16
<PAGE>   17
       On September 8, 1999, the Securities and Exchange Commission (the
"Commission") entered an order directing an investigation entitled "In the
Matter of Zila, Inc." The Commission is investigating whether (i) there were
purchases or sales of securities of the Company by persons while in possession
of material non-public information concerning the prospects that the Oncologic
Drugs Advisory Committee for the FDA would recommend approval of the OraTest(R)
NDA and whether the FDA would subsequently approve the NDA; (ii) such persons
conveyed information regarding these matters to other persons who effected
transactions in securities of the Company without disclosing the information;
and (iii) there were false and misleading statements in press releases, filings
with the Commission, or elsewhere concerning these matters. The Company does not
believe it has violated any of the federal securities laws and is cooperating
fully with the Commission in its investigation.

       The Company is subject to other legal proceedings and claims, which arise
in the ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these other actions will not materially
affect the financial position or results of operations of the Company.

ITEM 2 - CHANGES IN SECURITIES

     Not Applicable

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.

     Not Applicable.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         (a)      The Company held its Annual Meeting on December 9, 1999.

         (b)      Joseph Hines, Carl A. Schroeder, Patrick M. Lonergan, Michael
                  Lesser, Curtis M. Rocca III, Christopher Johnson and Kevin
                  Tourek were elected directors of the Company at the Annual
                  Meeting.

         (c)      At the Annual Meeting, the Company's stockholders ratified
                  Deloitte & Touche LLP as auditors for the Company for its 2000
                  fiscal year. The vote was as follows:
<TABLE>
<CAPTION>

                      Votes for                          Votes withheld                      Votes against
                      ---------                          --------------                      -------------
<S>                                                      <C>                              <C>
                      37,534,845                            174,091                             293,551
</TABLE>
ITEM 5.  OTHER INFORMATION

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>

     (a)      Exhibits

<S>                                   <C>
           Exhibit Number             Description

                 27                   Financial Data Schedule
</TABLE>

    (b)    Reports on Form 8-K

                                       17
<PAGE>   18
                  On January 3, 2000, the Company filed a Current Report on Form
                  8-K to report that it had completed the sale of substantially
                  all of IDT's assets and liabilities related to its
                  PracticeWorks division located in Gold River, California to
                  InfoCure Corporation ("InfoCure"), of Atlanta, Georgia.


                                       18
<PAGE>   19

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


Date: March 15, 2000                  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)


                                       19
<PAGE>   20
                                 EXHIBIT INDEX

EXHIBIT NO.                            DESCRIPTION
-----------                            -----------

27                                     Financial Data Schedule