<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 October 31, 1999 or

     Transition report pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934

For the transition period from ____________________to__________________________

Commission file number 0-17521

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

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

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

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

         Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

         Yes  X    No.

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

         The number of shares of the Company's common stock outstanding at
October 31, 1999 was 41,019,488 shares.

                                                                Exhibit Index 18
                                                                  Total pages 19

<PAGE>   2

                                TABLE OF CONTENTS

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

   Item 1.  Financial Statements (Unaudited)

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


             Condensed consolidated statements of operations for the quarters and three months
             ended October 31, 1999 and 1998                                                                4

             Condensed consolidated statements of cash flows for the three months ended October
             31, 1999 and 1998                                                                              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                                                                               17

   Item 5.  Other information                                                                               18

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

             SIGNATURES                                                                                     19
</TABLE>

<PAGE>   3

ZILA, INC. AND SUBSIDIARIES
---------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                     October             July
ASSETS                                                                              31, 1999         31, 1999
                                                                               --------------     -----------
<S>                                                                            <C>               <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                    $  3,494,513      $  5,770,970
  Trade receivables - net                                                         9,493,196         8,741,283
  Note receivable                                                                 4,000,000                 -
  Inventories - net                                                              10,438,393        11,405,883
  Prepaid expenses and other current assets                                       1,315,582         1,126,773
  Deferred income taxes                                                           3,063,582         3,705,715
                                                                               -------------     ------------
         Total current assets                                                    32,455,266        30,750,624
                                                                               -------------     ------------

PROPERTY AND EQUIPMENT - Net                                                      5,597,260         5,680,281
PURCHASED TECHNOLOGY RIGHTS - Net                                                 5,928,305         6,037,415
GOODWILL - Net                                                                   13,609,261        15,679,969
TRADEMARKS - Net                                                                 10,626,451        10,782,029
CASH HELD BY TRUSTEE                                                              4,906,719         4,834,755
OTHER ASSETS                                                                      4,043,578         2,790,860
                                                                               -------------     ------------
TOTAL                                                                          $ 76,516,840      $ 76,555,933
                                                                               =============     =============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                             $  3,581,306      $  3,680,639
  Accrued liabilities                                                             3,259,452         2,760,735
  Deferred revenue                                                                1,097,607           982,037
  Short-term borrowings                                                             365,137           116,950
  Current portion of long-term debt                                                 188,987         1,164,399
                                                                               -------------     ------------
         Total current liabilities                                                8,492,489         8,704,760

LONG-TERM DEBT - Net of current portion                                           9,553,816         9,577,755
                                                                               -------------     ------------
          Total liabilities                                                      18,046,305        18,282,515
                                                                               -------------     ------------

COMMITMENTS AND CONTINGENCIES

SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK:
  Issued 30,000; outstanding 5,925 shares (October 31, 1999) and
   7,482 shares (July 31, 1999); liquidation preference value: $1,220 per share   6,842,850         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 41,019,488 shares
   (October 31, 1999) and 40,378,588 shares (July 31, 1999)                          41,019            40,379
  Capital in excess of par value                                                 71,588,176        69,395,976
  Deficit                                                                       (20,001,085)      (19,949,703)
                                                                               -------------     ------------
                                                                                 51,628,110        49,486,652
  Less 42,546 common shares held by wholly-owned
    subsidiary (at cost)                                                               (425)             (425)
                                                                               -------------     ------------
        Total shareholders' equity                                               51,627,685        49,486,227
                                                                               -------------     ------------
TOTAL                                                                          $ 75,516,840      $ 76,555,933
                                                                               =============     ============
</TABLE>


See notes to condensed consolidated financial statements.


                                       3
<PAGE>   4

 ZILA, INC. AND SUBSIDIARIES

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 THREE MONTHS ENDED OCTOBER 31, 1999 AND 1998
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     Quarters ended October 31,
                                                                  ------------------------------
                                                                         1999              1998
                                                                  ------------     -------------
<S>                                                               <C>              <C>
 NET REVENUES                                                     $19,171,593      $ 16,502,808
                                                                  ------------     -------------

 OPERATING COSTS AND EXPENSES:
   Cost of products sold                                            9,476,536         7,858,646
   Selling, general and administrative                              8,744,370         6,830,861
   Research & development                                             730,127           781,091
   Depreciation and amortization                                      916,882           886,318
                                                                  ------------     -------------
                                                                   19,867,915        16,356,916
                                                                  ------------     -------------

 (LOSS) INCOME FROM OPERATIONS                                       (696,322)          145,892
                                                                  ------------     -------------

 OTHER INCOME (EXPENSES):
   Interest income                                                     77,766            76,804
   Interest expense                                                  (127,163)          (70,222)
   Other (expense) income                                             (14,875)            7,034
   Realized gain on sale of assets                                    139,212
                                                                  ------------     -------------
                                                                       74,940            13,616
                                                                  ------------     -------------

 (LOSS) INCOME BEFORE INCOME
   TAX BENEFIT                                                       (621,382)          159,508

 INCOME TAX BENEFIT                                                   570,000           596,000
                                                                  ------------     -------------

 NET (LOSS) INCOME                                                $   (51,382)     $    755,508
                                                                  ============     =============

 NET (LOSS) INCOME  PER SHARE - BASIC                             $     (0.00)     $       0.02
                                                                  ============     =============

 NET (LOSS) INCOME PER SHARE - DILUTED                            $     (0.00)     $       0.02
                                                                  ============     =============

 BASIC SHARES OUTSTANDING                                          40,867,566        35,000,460
 EQUIVALENT SHARES                                                                    7,400,238
                                                                  ------------     -------------
 BASIC AND DILUTED SHARES OUTSTANDING                              40,867,566        42,400,698
                                                                  ============     =============
</TABLE>


See notes to condensed consolidated financial statements.


                                       4
<PAGE>   5

ZILA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED OCTOBER 31, 1999 AND 1998
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                         Quarters ended October 31,
                                                                                 -------------------------------------------
                                                                                          1999                         1998
                                                                                 -------------                 ------------
<S>                                                                              <C>                           <C>
OPERATING ACTIVITIES:
     Net (loss) income                                                           $     (51,382)                $    755,508
     Adjustments to reconcile net (loss) income to
         net cash used in operating activities:
         Depreciation and amortization                                                 916,882                      886,318
         Gain on sale of assets                                                       (139,212)                           -
         Deferred income taxes                                                        (577,867)                    (596,000)
         Other                                                                          23,090                       46,459
         Change in assets and liabilities:
            Receivables - net                                                       (1,322,982)                    (400,223)
            Inventories                                                                (88,524)                    (756,745)
            Prepaid expenses and other assets                                         (416,187)                    (381,804)
            Accounts payable and accrued expenses                                      364,963                     (739,877)
            Deferred revenue                                                           115,570                      101,558
                                                                                 -------------                 ------------

              Net cash used in operating activities                                 (1,175,649)                  (1,084,806)
                                                                                 -------------                 ------------

INVESTING ACTIVITIES:
     Purchases of property and equipment                                              (319,625)                    (820,388)
     Purchases of intangible assets                                                     (5,430)                     (60,040)
                                                                                 -------------                 ------------

         Net cash used in investing activities                                        (325,055)                    (880,428)
                                                                                 -------------                 ------------

FINANCING ACTIVITIES:
     Net proceeds from short-term borrowings                                           248,187                       34,119
     Net proceeds from issuance of common stock                                              -                       27,597
     Principal payments on long-term debt                                           (1,023,940)                     (16,911)
                                                                                 -------------                 ------------

         Net cash (used in) provided by financing activities                          (775,753)                      44,805
                                                                                 -------------                 ------------

NET (DECREASE) IN CASH AND CASH EQUIVALENTS                                         (2,276,457)                  (1,920,429)

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

CASH AND CASH EQUIVALENTS, END OF PERIOD                                         $   3,494,513                 $  3,320,772
                                                                                 =============                 ============

CASH PAID FOR INTEREST                                                           $     102,574                 $     23,762
                                                                                 =============                 ============

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


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

     Non-cash aspects of Cygnus sale of assets:
         Net Book Value of assets sold and liabilities assumed                   $   3,860,788
                                                                                 -------------

         Value of Note Receivable                                                $   4,000,000
                                                                                 -------------

     Income tax benefit attributable to exercise of common stock options         $     250,000                 $    250,000
                                                                                 -------------                 ------------
     Conversion of Series A Convertible Redeemable Preferred stock               $   1,944,341                 $  2,414,874
                                                                                 -------------                 ------------
</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"), 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 (LOSS) INCOME 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 October 31,
                                                                                1999                     1998
                                                                            ----------               ----------

<S>                                                                         <C>                      <C>
         Net (loss) income                                                  $  (51,382)                $755,508
                                                                            ----------               ----------
         Average outstanding common shares                                  40,867,566               35,000,460
                                                                            ----------               ----------
         Basic net (loss) income per share                                      $(0.00)                   $0.02
         Diluted net (loss) income per share:
             Net (loss) income available for diluted earnings               $ (621,382)                $755,508
                                                                            ==========                 ========

         Average outstanding common shares from above                       40,867,566               35,000,460
         Additional dilutive shares related to stock
             options and warrants                                                                       461,898
         Additional dilutive shares related to convertible
             preferred stock                                                                          6,938,340
         Average outstanding and potentially dilutive
             common shares                                                  40,867,566               42,400,698
                                                                            ==========               ==========
         Dilutive net (loss) income per share                                  $(0.00)                    $0.02
                                                                            ----------               ----------
</TABLE>

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


                                       6
<PAGE>   7

3.  INVENTORIES

         Inventories consist of the following:

<TABLE>
<CAPTION>
                                                     October 31,              July 31,
                                                         1999                   1999
                                                     -----------             ----------
<S>                                                  <C>                     <C>
       Finished goods                                $ 7,381,751             $ 7,531,175
       Raw materials                                   3,207,642               4,174,321
       Inventory reserves                               (151,000)               (299,613)
                                                     -----------             -----------
                                                     $10,438,393             $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. In the quarter ended October 31,
         1999, the Company recorded an income tax benefit of $820,000 ($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). In the prior year quarter ended October 31, 1998, the Company
         recorded an income tax benefit of $910,000 ($250,000 of which was
         attributable to the exercise of common stock options 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.

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 accreted to its redemption value. During the
         first three months of fiscal year 2000, 1,557 shares of the Preferred
         Stock were converted into common stock.


                                        7
<PAGE>   8

7. SALE OF CYGNUS 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 purchase price was paid through the issuance of a
         note receivable which was collateralized by the assets of Procare and
         matured on November 10, 1999. The note was paid in full on November 10,
         1999. The sale resulted in a $139,000 gain.

         The following unaudited pro forma information presents the condensed
         consolidated results of operations as if the sale had occurred as of
         the beginning of each period presented and does not purport to be
         indicative of what would have occurred had the sale been made as of
         those dates.

<TABLE>
<CAPTION>
                                                                                        Quarter ended October 31,
                                                                                        -------------------------
                                                                                     1999                      1998
                                                                                     ----                      ----
                                                                                 (in thousands, except per share data)

<S>                                                                                <C>                      <C>
                 Net revenues                                                      $18,978                  $15,754

                 Net income                                                           $622                   $1,233

                 Net income per common and common
                     equivalent share (basic)                                        $0.02                    $0.04

                 Net income per common and common
                     equivalent share (diluted)                                      $0.01                    $0.03
</TABLE>


8. SEGMENT INFORMATION

         In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
         Segments of an Enterprise and Related Information". SFAS No. 131
         supersedes FAS No. 14, "Financial Reporting for Segments of a Business
         Enterprise", replacing the "industry segment" approach with the
         "management" approach. The management approach designates the internal
         organization that is used by management for making operating decisions
         and assessing performance as the source of the Company's reportable
         segments.

         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 for purposes of applying SFAS No.
         131: Pharmaceuticals, which includes Zila Pharmaceuticals, Inc.,
         OraTest products, Dental Supply, which includes Bio-Dental Technologies
         Corporation and Ryker Dental of Kentucky, Inc. (a subsidiary of
         Bio-Dental Technologies Corporation) which does business under the name
         Zila Dental Supply, Dental Software, which includes Integrated Dental
         Technologies, Inc., (a subsidiary of Bio-Dental Technologies
         Corporation) the distributor for PracticeWorks, Dental Imaging, which
         includes Cygnus Imaging, Inc. and Nutraceuticals, which includes Oxycal
         Laboratories, Inc. The Company evaluates performance and allocates
         resources to segments based on operating results. Corporate overhead
         expenses have been combined with the OraTest segment.


                                        8
<PAGE>   9


         The table below presents information about reported segments as of and
         for the three months ended October 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:
            1999                          $3,713         $34     $9,571      $1,118        $193          $4,543      $19,172
            1998                           4,365         195      7,291       1,008         749           2,895       16,503
     Income (loss) before
       income taxes:
            1999                             878     (2,360)        119          48       (534)           1,228         (621)
            1998                           1,553     (1,598)        187          13       (477)             482          160
     Depreciation and
       amortization:
            1999                             252         243         75          26         111             210          917
            1998                             252         213         74          19          94             234          886
     Total assets:
            1999                          13,242      16,945     10,969       1,082       3,814          29,645       75,697
            1998                          14,620      13,608      8,178         931       5,180          27,805       70,322
</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 toxicity and chemical analysis
         studies resulting from 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 Complaint 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 Complaint 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. 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.


                                       9
<PAGE>   10

         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.  SUBSEQUENT EVENTS

         On November 1, 1999, the Company announced the signing of a letter of
         intent to sell its PracticeWorks division to Infocure Corporation, a
         leading provider of healthcare practice management software products
         and services. The estimated $4.6 million cash transaction is expected
         to be completed in December 1999. Ten percent (10%) of the sales price
         will be held in escrow for one year in order to secure the warranties,
         representations and covenants made by the Company to Infocure
         Corporation.

         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.


                                       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 identity 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
operating groups: Pharmaceuticals, Professional Products and Nutraceuticals. The
Pharmaceuticals Group consists of over-the-counter and prescription products,
including the Zilactin(R) family of over-the-counter products, Peridex(R)
prescription mouth rinse, and OraTest(R), an oral cancer detection system. The
Professional Products Group includes Zila Dental Supply, a national distributor
of professional dental supplies, Cygnus Imaging ("Cygnus"), a manufacturer and
marketer of digital x-ray systems and intraoral cameras, and Integrated Dental
Technologies, Inc. which distributes 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).


                                       11
<PAGE>   12

         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 purchase price was
paid through the issuance of a note receivable which was collateralized by the
assets of Procare and matured November 10, 1999. The note was paid in full on
November 10, 1999. The sale resulted in a $139,000 gain. Cygnus had revenue of
approximately $193,000 and a net loss of $720,000 for the quarter ended October
31, 1999. 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
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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED OCTOBER 31, 1999 AND 1998

         Total net revenues grew 16.2% to $19.2 million for the quarter ended
October 31, 1999 compared to revenues of $16.5 million during the first quarter
of the prior fiscal year.

         Net revenues for Zila Dental Supply increased 31.3% to $9.6 million for
the quarter ended October 31, 1999 compared to $7.3 million for the
corresponding fiscal quarter in 1999. This increase was primarily attributable
to an increase in mail order and internet sales and an expansion of its full
service sales force. Zila Pharmaceuticals had net revenues of $3.7 million for
the quarter ended October 31, 1999, an 14.9% decrease over the $4.4 million
recorded during the corresponding quarter last year. The decrease was due
primarily to a decline in sales of Peridex(R) due to increased pricing pressures
from generic equivalents.

         Net revenues for Oxycal for the quarter ended October 31, 1999 were
$4.5 million, a 56.9 % increase when compared to the $2.9 million for the
corresponding 1999 fiscal quarter. Oxycal's international sales increased 131.8%
during the quarter ended October 31, 1999 as compared to the previous year
quarter due to improved economic conditions in their foreign markets. In
addition, Oxycal had increases in all of its domestic product lines when
compared to the fiscal 1999 quarter. PracticeWorks(TM) had net revenues of $ 1.1
million for the quarter ended October 31, 1999, an increase of 10.8% over net
revenues of $1.0 million in the corresponding 1999 quarter. The increase was
primarily due to an expansion of its dealer network and increased demand for
Windows based and Year 2000 ready dental software systems.

         For the quarter ended October 31, 1999, cost of products sold was $9.5
million, a 20.6% increase from $7.9 million for the quarter ended October 31,
1998. Cost of products sold as a percentage of net revenues increased to 49.4%
in the quarter ended October 31, 1999 from 47.6% in the quarter ended October
31, 1998. The increase for the quarter reflects the growth of Zila Dental Supply
as a percentage total revenues, 50.0% for the quarter ended October 31, 1999
compared to 44.2% for the previous year quarter. 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.


                                       12
<PAGE>   13

         Cost of products sold as a percentage of net revenues for Zila Dental
Supply decreased slightly to 73.8% for the quarter ended October 31, 1999 from
75.1 % for the quarter ended October 31, 1998 primarily due to vendor rebate
programs. Cost of products sold as a percentage of net revenues for Zila
Pharmaceuticals increased to 20.2% in the quarter ended October 31, 1999 from
15.3% in the quarter ended October 31, 1998. 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
improved slightly to 27.6% in the quarter ended October 31, 1999 from 28.1% in
the quarter ended October 31, 1998. The decrease is a result of favorable raw
material purchase contracts in effect for the current quarter as compared to the
corresponding period last year. PracticeWorks had a decrease in cost of products
sold as a percentage of net revenues from 7.0% in the quarter ended October 31,
1998 to 4.7% in the current fiscal quarter. The decrease is mainly due to an
increase in higher software and support revenue and lower training costs.

         The Company incurred selling, general and administrative expenses of
$8.7 million, or 45.6% of net revenues during the first quarter of fiscal year
2000 compared to $6.8 million, or 41.4% of net revenue in the same period in
fiscal 1999. The increase for the quarter ended October 31, 1999 is attributable
to increased costs related to the expansion of the sales force and the service
department at Zila Dental Supply, increased administrative costs related to
OraTest(R), increased marketing and selling expenses at Oxycal and increased
corporate legal, professional and insurance expenses.

         Research and development expenses decreased $51,000, or 6.5%, from
$781,000 in the first quarter of fiscal year 1999 to $730,000 for the same
period in fiscal year 2000. The decrease was primarily due to reduced expenses
related to research and clinical activities associated with OraTest(R).

         The Company recorded interest expense of $127,000 for the quarter ended
October 31, 1999 compared to $70,000 in the same period of the previous year.
The increase was attributable to additional debt obligations during the fiscal
year 2000 quarter related to the funding of a new manufacturing and laboratory
facility for Oxycal and additional bank borrowings.

         Depreciation and amortization expenses increased $31,000 from $886,000
in the first quarter of fiscal year 1999 to $917,000 for the same period in
fiscal year 2000. The increase is due primarily to the depreciation of assets
associated with the OraTest(R) manufacturing facility which were placed in
service August 1, 1999.

         In the quarter ended October 31, 1999, the Company recorded an income
tax benefit of $820,000 ($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).  In the prior year quarter ended October 31, 1998 the
Company recorded an income tax benefit of $910,000 ($250,000 of which was
attributable to the exercise of common stock options and therefore was credited
to capital in excess of par value), partially offset by an income tax expense
of $64,000 related to the first quarter of fiscal year 1999.

         For the quarter ended October 31, 1999, the Company had a net loss of
$51,000 compared to net income of $756,000 for the quarter ended October 31,
1998. The decrease in profitability is primarily due to increased losses at
Cygnus from the technical difficulties associated with the digital x-ray
systems.


                                       13
<PAGE>   14

LIQUIDITY AND CAPITAL RESOURSES

         At October 31, 1999, the Company's primary sources of liquidity
included cash and cash equivalents of $3.5 million and a bank line of credit.
Working capital increased to $23.3 million at October 31, 1999 from $22.0
million at July 31, 1999 and the current ratio increased to 3.7 from 3.5.

         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
October 31, 1999) plus .25%. At October 31, 1999, the Company had borrowings of
$4.2 million 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 October 31, 1999, the Company was in compliance with such covenants.

         Net cash used in operating activities was $1.2 million during the
quarter ended October 31, 1999 attributable to the net loss of $51,000 as
adjusted for the effects of non-cash items of $223,000 and changes in operating
assets and liabilities totaling $1.3 million. Significant changes in operating
assets and liabilities were primarily comprised of an increase in accounts
receivable of $1.3 million as the sales in the current quarter were higher than
sales in the July 1999 quarter, an increase in prepaid expenses of $416,000
related to the renewal of insurance policies partially offset by an increase in
accounts payable and accrued expenses of $365,000.

         Net cash used in investing activities was $325,000 consisting primarily
of manufacturing additions for OraTest(R) and furniture and computer systems at
PracticeWorks.

         The net cash of $776,000 used in financing activities for the quarter
ended October 1999 was comprised of the final payment of $1 million made to The
Procter & Gamble Company related to the acquisition of the Peridex product line,
partially offset by net borrowings of approximately $248,000 related to the
financing of insurance policies.

         At October 31, 1999, the Company had income tax net operating loss
carryforwards of approximately $23.2 million, which expire in years 2000 through
2019.

         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 October 31, 1999, carried interest rates of 3.70% and
5.50%, 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. The facility
is expected to be completed by mid-2000.

         On November 1, 1999, the Company announced the signing of a letter of
intent to sell its PracticeWorks division to Infocure Corporation, a leading
provider of healthcare practice management software products and services. The
estimated $4.6 million cash transaction is expected to be completed in December
1999. Ten percent (10%) of the sales price will be held in escrow for one year
in order to secure the warranties, representations and covenants made by the
Company to Infocure Corporation.


                                       14
<PAGE>   15

         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 toxicity and
chemical analysis studies resulting from 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.

         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.

         YEAR 2000 IMPACT. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. The Company recognizes that the impact of the Year 2000 issue
extends beyond traditional computer hardware and software to automated plant
systems and instrumentation, as well as third parties. The Year 2000 issue has
been addressed within the Company by its individual business units, and progress
is reported periodically to management. The Company has contracted with
independent experts as considered necessary.

         The Company has substantially completed the process of evaluating the
capabilities of its internal computer systems, software and equipment to process
the Year 2000 correctly. The Company believes that most vendor developed
software which it utilizes in its internal operations has been made Year 2000
compliant through vendor provided updates. Additionally, the Company has tested
its internally developed software and hardware, which are included in the
products sold to its customers. Those systems and applications identified as
needing remediation will be modified and tested prior to December 31, 1999.

         In addition to risks associated with the Company's own computer
systems, software and equipment, the Company's business may be adversely
affected by any third party with whom it transacts business that have not
resolved the Year 2000 issue. These include financial institutions, suppliers,
vendors and governmental agencies. The Company is reviewing the efforts of its
vendors and customers to become Year 2000 compliant. Letters and questionnaires
have been sent to most critical entities with which the Company does business to
assess their Year 2000 readiness. Responses to the questionnaires arrive
periodically and are helping the Company evaluate the extent to which it maybe
vulnerable to its vendors' own Year 2000 issues. As of October 31, 1999, the
Company's individual business units have reported that a majority of the
responses have been received and the Company has not discovered any significant
negative third party Year 2000 compliance issues. Although this review is
continuing, the Company is not currently aware of any vendor or customer
circumstances that may have a material adverse impact on the Company. The
Company can provide no assurance that Year 2000 compliance plans will be
successfully completed by suppliers and customers in a timely manner. If a
significant number of the Company's suppliers and customers were to experience
business disruptions as a result of their lack of Year 2000 readiness, their
problems could have a material adverse effect on the financial condition and
results of operations of the Company.


                                       15
<PAGE>   16

Costs

         The total cost of Year 2000 activities is not expected to be material
to the Company's operations, liquidity or capital resources. Costs are managed
within each business unit. The total estimated cost for the Company's Year 2000
work is approximately $200,000, of which approximately $190,000 has been
incurred as of October 31, 1999; however, such costs are subject to change as a
result of ongoing evaluation of the extent of the Year 2000 problem at the
Company. The total costs of the Year 2000 systems upgrades and assessments are
currently funded through cash flow from operating activities.

Risks

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

Contingency Plan

         The Company believes that its most significant risk with respect to
Year 2000 issues relates to the performance and readiness status of third
parties. Such risks include the inability to process and deliver customer orders
and payments, procure salable merchandise and perform other critical business
functions which could have a material impact on the financial performance of the
Company. The Company is formulating plans to assure adequate inventory to meet
customer needs, identifying and securing alternate sources of critical services,
materials and utilities when possible and establishing crisis teams to address
unexpected problems. Due diligence and monitoring with respect to third parties
is scheduled to be performed on a continuous basis until the end of 1999. A
formal plan will be adopted if it becomes evident that there will be an area of
non-compliance in the Company's systems or at a critical third party which will
impact its operations.


                                       16
<PAGE>   17

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. 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.

       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.

     Not Applicable.


                                       17
<PAGE>   18

Item 5 - OTHER INFORMATION

         On November 1, 1999, the Company announced the signing of a letter of
intent to sell its PracticeWorks division to Infocure Corporation, a leading
provider of healthcare practice management software products and services. The
estimated $4.6 million cash transaction is expected to be completed in December
1999. Ten percent (10%) of the sales price will be held in escrow for one year
in order to secure the warranties, representations and covenants made by the
Company to Infocure Corporation.

         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.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

           Exhibit Number             Description

                      27              Financial Data Schedule

         (b)      Reports on Form 8-K

                  None


                                       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: December 15, 1999                    By /s/ Joseph Hines
                                              --------------------------------
                                           Joseph Hines
                                           President, Chairman of the Board
                                           (Principal Executive Officer)



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


                                       19
<PAGE>   20

                                 EXHIBIT INDEX

Exhibit No.               Description

27                        Financial Data Schedule